On high alert over influx of hot money

CHINA is targeting a huge influx of hot money in a major effort to fend off potential threats posed by speculative funds to the Chinese economy.  

Both government officials and economic researchers have sensed the danger of a growing amount of hot money, which is estimated to have reached between US$30bil (RM114bil) to US$50bil (RM190bil) in a gamble that China would revalue its currency.  

“We hope there is no further rise in hot money,” Zhou Xiaochuan, governor of the People's Bank of China, told Beijing-based Financial News. “As we have signalled, any speculation in this field will most possibly end up in failure.”  

The central bank governor noted that from the point of view of discouraging hot money speculation, “it is good to emphasise that the exchange rate of the yuan would be kept steady”.  

Despite increasing calls by some countries to revalue the yuan, the Chinese government has made clear its determination to defend the stability of its currency.  

The strong Chinese statement was believed to be a clear warning to international currency speculators, who channelled up to US$25bil (RM95bil) into China during the first half of this year.  

China's forex reserves rose by a hefty US$60.1bil (RM228bil) in the first six months of this year, outstripping by more than US$25bil (RM95bil) the combined US$4.5bil (RM7bil) trade surplus and US$30.3bil (RM115bil) in actual foreign-direct investment. That discrepancy, many economists suspect, is a result of inflows of hot money in a bet on currency appreciation as Japan and the United States step up pressure for a stronger yuan.  

Such speculative capital sneaked into China mainly through trading, foreign direct investment, the qualified foreign institutional investor programme and individual flow from overseas Chinese to relatives living on the mainland, according to experts.  

They warned that besides exerting considerable pressure on yuan revaluation, the massive inflows of hot money also added to the difficulty for the government in curbing over-capitalisation and inflation through monetary policy.  

Prof Peng Yun'e of Tongji University in Shanghai blamed the huge influx of hot money for an excessively rapid rise in the country's broad money supply, which might ignite inflation.  

The speculative money may go into bonds and bank accounts, raising the amount available for lending. – People's Daily  

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