Foreign Direct Investment in China and the Sino-US Trade Imbalance

Abstract

As economic globalization is deepening, a new international division of labor emerges, which is, to a large extent, realized in the form of FDI. Sino-US trade is in the state of fast development, and foreign direct investment in China also goes through large-scale expansion in the meantime. With its huge market potential, broad development prospects and increasingly improved investment environment, China has attracted an increasing number of foreign investors to invest in China, thus China is gradually becoming a great power utilizing foreign investment. Foreign-funded enterprises in China play a significant role in the import and export trade between China and the United States and the development of Sino-US trade. The rapid growth of China-US trade is largely benefited by the rapid development of foreignfunded enterprises in China. In the long run, foreign direct investment in China has a great impact on Sino-US import and export trade. In this paper, the correlation between the volumes of foreign investments in China during the period between 1983-2019 and the Sino-US import and export trade is analyzed, and based on the co-integration relationship between foreign direct investment in China and the Sino-US import and export trade, it comes to a conclusion that foreign direct investment in China plays a catalytic role in both import and export trade between China and the United States, that is, foreign direct investment has a stimulating effect on Sino-US import and export trade, resulting in China’s ever-expanding trade surplus with the United States.