By examining the characteristics of China's current account structure and the channels
that FDI may influence it , this paper presents a rigorous analysis of the impact of FDI on the
changes of China's current account balance in the balance of payments . The results of variance
decomposition analysis reveal that FDI is a significant contributing factor to the current account
balance , which , from 1982 to 2006 , constituted a fluctuation of approximately fourteen percent .
In addition , FDI has conflicting influences on the current account balance . On one hand , FDI
contributes to China's trade surplus by driving growth in manufacturing and related sectors ,
constituting an increase in current account balance and hence the balance of payments .