The Determinants of China´s Trade Balance

This paper investigates the determinants of China´s trade balance by using cointegration test and error correction model approach. The empirical results show that accumulated foreign direct investment and world income have a significant influence on China´s trade balance. They also provide support to the idea that RMB depreciation doesn´t affect China´s trade balance significantly. Therefore we must focus our considerations on some policies and measures of expanding domestic demand and controlling foreign direct investment more than revaluation of RMB only.