Modern Foreign Direct Investment In China And China Foreign Trade(1894-1936)

The relationship between foreign direct investment(FDI) and external trade influence the host country's economy in theory and practice, which has been not only a very valuable research subject, but also a hot topic in academic research. The article's research of FDI and China's external trade are rooted in the period of late Qing Dynasty and the Republic of China, to explore the western capital into China has how to affect China's economy developing in this turbulence time. In this paper, under the perspective of historical development, based on the historical materials and through theoretical analysis and statistical analysis of measurement to estimate and test data of China national foreign trade and foreign direct investment in China, which dated from Sino-Japanese war broke out in 1894 to the eve of the second world war in 1936(42 years), by using VAR model and granger causality test. In the meantime, combined with the historical data to select classic case to further the relationship between FDI and foreign trade; to select the data and case which related the foreign direct investment in China and trade as the key breakthrough to make a further study about FDI's affect on our country's economy during the period of current.In terms of foreign direct investment in China, foreign direct investment(not including the foreign debt in all kinds of infrastructure and financial industry development) was in a rising trend on the whole. According to the historical data to estimate, foreign direct investment has growth from 213700000(silver dollar) to 9278000000(silver dollar) from 1894 to 1936, the foreign direct investment increased by nearly 43 times in almost 42 years, especially since 1918, growth rate has significantly accelerate.In trade, in this period, domestic trade volume has grown from $2.372 million in 1894 to 1 $16.483 billion in 1936, its growth speed is very fast. In terms of export, trade exports rose from $0.9864 million in 1894 to $ 7.679 million in 1936, increased by 7.78 times, growth is higher than that of trade volume growth. But in the balance of trade ways, in the same period, the trade deficit in expanding continuously. Trade balance amount grown from about-$0.2618 million in 1894 to-$2.348 in 1936, expanded 8.968 times. Overall this period of time, China's foreign trade has been in a trade deficit, and trade deficit amount in expanding constantly.The paper systematically analyzed the data which including foreign direct investment in China ? annual export data and the balance of trade data, by using the model of granger causality test and vector autoregressive model and impulse response function for data processing. By using unit root test, cointegration test, granger causality test and impulse response analysis, to identify the relationship which including foreign direct investment in China and China's export and trade deficit. Results show that during the same period, the foreign investment in China is the granger reason of China's foreign trade export and trade deficit, on the contrary, China's foreign trade export and trade deficit is not a foreign direct investment in China granger reason.Combining with the historical data and classic case to analysis the development of the domestic textile industry and the import and export situation. The most important reason to attract foreign direct investment in China is the low price raw materials and cheap labour resources in domestic. Foreign investment in China factories, they use of the cheap resources, reduce costs and increase profits, and most of the goods for export, which to a certain extent, also enlarged the trade deficit of China. This is in conformity with Export Platform type FDI(Export- Platform FDI), which has certain spillover effect on export. We will compare the textile enterprises which was set up by Japanese investment in China and the domestic cotton textile company to verify the conclusion.Based on the analysis of the above, in the 42 years, from sino-Japanese war broke out in 1894 to the eve of the second world war in 1936, foreign direct investment in China has promoted China's foreign trade exports, but at the same time, foreign investment in China has a directly effect on China's trade deficit expanding.