Most of the speculative and arbitrage capital from overseas that has entered China in recent months has ended up in the property and equity markets, an official at the country’s foreign-exchange regulator said in rare comments as the agency usually plays down the effect of hot money inflows into China.
An investigation that began in February has uncovered 190 cases of hot money inflows involving US$7.35 billion ($10.23 billion), Mr Deng Xianhong, a vice-director at the State Administration of Foreign Exchange (Safe), said in an interview published yesterday in the state-run People’s Daily.
“A situation of continuous foreign exchange fund inflows forms easily,” Mr Deng said.
“Higher interest rates for the yuan compared to foreign currencies and expectations of yuan appreciation create very strong attractions for overseas capital … The resulting higher domestic stock and property prices and strengthened expectations of a stronger yuan lead to further foreign exchange fund inflows,” he said.
Rather than attracting hot money, the yuan exchange rate should be a means of getting rid of inflows of such funds, Mr Deng said.
The comments come after the People’s Bank of China (PBOC) loosened the yuan’s exchange-rate mechanism on June 19 in a surprise move.
The PBOC set the US dollar-yuan central parity rate at 6.7733 yesterday, compared to 6.7720 on Friday.
China’s property prices have risen steadily over the past year, leading Beijing to introduce a series of measures to cool the sector, including higher minimum downpayments and other requirements.
Home prices were up for the 12th straight month in May from a year earlier, though the rate of increase slowed slightly from the previous month.
The benchmark Shanghai Composite Index has fallen 28 per cent this year as Beijing withdraws the stimulus measures introduced to cushion the effects of the financial crisis.
China yesterday also revised up its first-quarter current account surplus to US$53.6 billion from US$40.9 billion, according to a statement on the Safe website.
Source: Today, 6 Jul 2010