The Influence Of China’s Direct Investment In Russia On Bilateral Merchandise Trade Structure

China and Russia are two neighboring countries. Both are the world’s two most important economies, but economic and trade cooperation between the two countries have been developing very slowly. By studying bilateral merchandise trade structure and FDI, we can provide the recommendations to optimize the structure of bilateral trade structure for these two countries. And we carry out a broader economic and trade cooperation in the future from the theoretical basis.The relationship between trade and investment interaction are the debating focus in academia. Currently, economists tend to discuss relationship between foreign direct investment and trade structure in a macro level, which is based on world-wide study. In research methods, economists also prefer theoretical research on the impact of the mechanism level, which can cause the deficiencies of empirical study in terms of both study methods and study quality.This paper introduces the impact of China’s direct investment in Russia on the structure of bilateral merchandise trade. Firstly, writer uses UNCOM Trade database classification method to make a new classification for the SITC data. It can be classified as:agricultural products, primary industrial products, labor-intensive products and capital intensive products. Secondly, according to this classification, writer uses revealed technological value-added method to calculate the trade structure between China and Russia within the past 20 years. Then, the paper uses the vector autoregressive model to find out the relationship on Russian direct investment and bilateral trade commodity structure. According to the results of empirical analysis, it can be found that Chinese investment has a positive correlation with bilateral trade structures. Finally, using the theory of factor endowment and H-O model to explain the empirical result. The study found that by increasing direct investment in Russia can not only release of China’s overcapacity, but also optimize the trade structure of both countries from the supply side. Therefore, this paper provides a theoretical support for bilateral economic and trade cooperation.