Thursday, February 17, 2011

China: Net USD35.5b hot money sneaked into China last year

BEIJING: The amount of hot money entering China in recent years is more an ant hill than a mountain, the foreign exchange regulator said on Thursday, Feb 17, countering the popular view that it faces a torrent of speculative inflows.

A net $35.5 billion of hot money sneaked into China last year, accounting for 7.6 percent of the country's increase in official currency reserves, the State Administration of Foreign Exchange said.

In China's first-ever public report to estimate the volume of speculative cash entering the country, SAFE said that hot money was not nearly as big a problem as worried officials often suggest.

Illicit cash inflows were more like "ants moving home", coming in bits and pieces via multiple deals and transactions, the regulator said.

It added the capital flows in and out of China were generally in line with the country's real level of economic activity.

"We have not found evidence of any large-scale capital inflows coordinated by any established financial institution," the agency said.

"The argument that cross-border capital flows are driving domestic stock market performance lacks evidence in the data," it concluded.

Nevertheless, it warned that all global liquidity was building up because of loose monetary policies in developed economies and that all countries would need to step up their defences against capital inflows.

Net hot money inflows in 2010 accounted for just 0.6 percent of China's GDP, it said.

Over the last decade, net hot money inflows averaged about $28.9 billion a year, contributing roughly 9 percent to China's foreign exchange reserve growth during that time, SAFE said in its 45-page report.

China registered about $400 billion in net capital outflows from 1994 to 2002. With the economy booming, property prices taking off and expectations for yuan appreciation mounting, the tide shifted from 2003 to 2010, with China seeing about $300 billion in net inflows, SAFE said.

In order to make capital flows more balanced, SAFE reiterated a long-standing pledge to broaden capital outflow channels. It also said that it would design financial, legal and administrative measures in order to make it more difficult to bring speculative capital into the country.

SAFE said it would take "extraordinary" emergency measures in sectors with excessive capital inflows. - Reuters

No comments:

Post a Comment