Application of grey incidence analysis to China's balance of payments impact in financial crisis

Abstract

This article studies the incidence of China's current economic situation with the balance of international payment in the context of US Financial Crisis. After having analyzed several connected relational method, it is more precise to apply Grey Relational theory in view of the small sample for smallest error. Hence, we use grey theory for selection of representative economic indicator and corresponding indicators with the balance of payments. According to the sampled data from 2005 to 2008, import trade of goods has the higher degree of grey incidence with China's GDP, namely 0.7506, compared with the import cargoes trade, the foreign direct investment, China's outward foreign direct investment. Then it explains the financial crisis's impact on China's international balance of payments, especially on the export of trade in goods. Finally, from the empirical results the article has analyzed the impact of the financial crisis on our national economy and put forward three suggestions.