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Compare the International Payments of the Transition Countries

Author: YouWenJing
Tutor: DuXiaoYu
School: Dongbei University of Finance
Course: International Trade
Keywords: transitional countries balance of payments comparison
CLC: F832.6
Type: Master's thesis
Year: 2010
Downloads: 66
Quote: 0
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Abstract


In 1997, Asian financial crisis broke out. A decade later,2007, the US-led subprime mortgage crisis affected the whole world once again:economies in different countries were influenced in varying degrees. Both China and Russia are transitional countries - from a highly centralized planned economy system to a market economy system, and both are representatives of progressive and radical transition model. Therefore, this paper takes China and Russia in comparison, analyzes the difference and similarities of the balance of payments in these two countries by comparing their balance of payments accounts, summarizes the common risk of economies in transitional countries and puts forward the advice of improving Chinese balance of payments.Russia lags behind China in economic development. Presently, economic development in Russia largely depends on energy source. The changes in international crude oil price, however, causes the fluctuations of Russian current account, resulting in the instability of Russian balance of international payments. China relying on cheap labor cost and government policy support actively expands foreign trade and keeps the current account always in surplus. As the early economic development in China depends on industries of heavy pollution and great energy consumption, China should adjust and optimize industrial structure at the present stage.Both China and Russia are known as the "BRIC" members due to the strong momentum of economic development indicating that market economy is more conductive to economic development after economic transition. But balance of payments statements in both China and Russia have deficits:Chinese international balance of payments presents "double surplus" and Russian balance of payments shows large fluctuations though surplus in current account and deficit in capital and financial account, which is caused by irrational economic structure. Transitional countries due to their weak economic base face difficulties in economic development and should pay enough attention to adjust the balance of payments. As is known to all, Russia is a typical country depending on energy source that is easily affected by international market to drive economic development and keep the rise in GDP and similarly China centers on industries of heavy pollution and great energy consumption as well. Although the two countries actively adjust industrial structure, their dependence on industries of heavy pollution and great energy consumption is still heavy. It can be said that the transitional countries should adjust economic developing strategy to increase the scientific and technical content in products and enhance product add value due to weak economic foundation and backward scientific and technical level to cope with the impact of changes in international market price.There are strong difference in capital and financial account between China and Russia:Chinese capital and financial account is in surplus in the long run but Russia’s is in deficit because of the large gap of direct investment accounts between the two countries. As China has stable domestic politics, strong exchange rate of RMB and super-national treatment from foreign countries, foreign direct investment in China is huge. Meanwhile, Chinese enterprises lack self-innovation brand and have the low ability for going out. As a result, the direct investment account is in large surplus in China. By analyzing direct investment account of Chinese balance of payments statements, the paper proposes again that China should step up the pace of going out, gives more support to the enterprises and the enterprises should also strengthen their going-out ability. In comparison, Russia should increase the power of attracting foreign investment to ease its foreign exchange shortage. Russian is in a serious debt situation having to pay large US interest rates each year and Russia also has the serous problem of capital outflow, which are "double whammy" to Russia. Therefore, Russia should strengthen capital supervision and improve domestic investment and financial environment to control capital outflow and attract foreign investment to improve the status of Russian capital finance account.On the basis of introducing the transitional process of both China and Russia and its impact, this paper analyzes the similarities and differences in balance of payments of the two countries and the hazardous effect caused by the structure of balance of payments of the two countries, and then puts forward the suggestions of improving and perfect Chinese balance of payments.

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CLC: > Economic > Fiscal, monetary > Finance, banking > China's financial,banking > Exchange rate,foreign financial relations
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