Hot money inflow should raise concern

17:58, January 31, 2013

Excessive liquidity has made people concerned that China may be impacted by the overflow of international hot money under the current atmosphere of quantitative easing of global monetary. An official from the State Administration of Foreign Exchange (SAFE) said the possibility of hot money inflow exists this year, but the evidence of hot money inflow has not been found yet. Expert believes that to tackle the inflow of hot money, China should stay highly vigilant but there is no need to panic.

Hot money targeting China

Data released by a SAFE’s report showed that the money exchange has experienced continuous surplus for four months since September 2012. Accumulative total value of money exchange surplus reached about 87 billion U.S. dollars, accounting for 80 percent of the gross surplus in 2012. Official from the SAFE said the inflow possibility of hot money still exists this year.

China is facing larger pressure of hot money inflow recently, said Xu Hongcai, vice director of information department of China Centre for International Economic Exchanges in an interview with People’s Daily Overseas Edition.

From the view of external elements, three global economy entities carried out quantitative easing policy in succession to promote global liquidity. As to internal factors, China has entered into new moderate rising period as the macro-economy in the fourth quarter ascending last year. International hot money is bound to target China due to economic growth rate and return on investment. Last year, hot money flocked in Hong Kong and pushed up real estate market and exchange rate of Hong Kong dollar.

Tan Yaling, president of China Forex Investment Research Institute, said hot money can inflow or outflow at any time. Therefore, we should not unilaterally treat the flow of hot money. The moving trend of hot money in the future should be decided by the global liquidity, the development of China’s macro-economy and the tendency of the yuan exchange rate. The yuan appreciation will stimulate global interest arbitrage capital flows to China, which may be the main reason for the inflow of hot money towards China.

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