China gets tough on hot money
By Feng Jianmin |
August 5, 2011, Friday
|
Print Edition
Print Edition
China is to take more forceful measures to counter inflows of speculative capital in the second half of the year amid loose monetary scenarios overseas and sustained inflationary pressure, the nation's foreign exchange regulator said yesterday.
The world's second biggest economy is still facing pressure from an influx of capital while the top priority is to stem an inflow of hot money and other illegal cross-border cash movements, the State Administration of Foreign Exchange said in a statement.
The comments came after the United States and Europe chose to maintain loose monetary stances, which some economists say is likely to overwhelm global markets with excess money and cripple efforts by emerging markets to combat inflation.
"We should fully recognize the severity and complexity of the foreign exchange market," SAFE said. "We will keep the high-profile stance to crack down on hot money and deal with illegal forex settlements."
The top currency regulator settled 1,865 criminal cases in the first half of this year involving US$16 billion in foreign currency, the statement said. Hot money, or speculative foreign capital, poses a great threat to China's efforts to manage liquidity and tame inflation.
The country's consumer price index rose 6.4 percent in June, the fastest pace in 32 months. Money supply grew nearly 16 percent by the end of June from a year earlier.
Frequent interest rate rises and the yuan's continued appreciation amid still robust economic growth was luring outside capital to seek better returns in the country.
The central bank has increased benchmark interest rates five times since last October, and raised banks' reserve requirement 12 times since January last year to contain inflation.
The People's Bank of China yesterday set the central parity rate of the yuan at 6.4386 against the US dollar, the highest in 17 years.
The Chinese currency has risen nearly 5 percent from the same period last year, and economists predict that it will reach 6.30 against the dollar by the end of the year.
Money inflow
Some US$35.5 billion of hot money entered the country last year, accounting for 7.6 percent of new foreign reserves in 2010, the foreign exchange regulator said. Hot money inflow is estimated at US$25 billion annually in the past 10 years, it said.
Market watchers have warned emerging economies that there will be challenges from cross-border capital flows against a backdrop of loose monetary policies in major developed countries and excess global liquidity.
The foreign exchange regulator said it will tighten regulations on banks' forex business and will step up measures to combat underground forex markets and illegal online trading.
The watchdog will further turn down the size of banks' short-term external debt, and will strictly inspect capital settlement and external debt of financial institutions and large enterprises.
The world's second biggest economy is still facing pressure from an influx of capital while the top priority is to stem an inflow of hot money and other illegal cross-border cash movements, the State Administration of Foreign Exchange said in a statement.
The comments came after the United States and Europe chose to maintain loose monetary stances, which some economists say is likely to overwhelm global markets with excess money and cripple efforts by emerging markets to combat inflation.
"We should fully recognize the severity and complexity of the foreign exchange market," SAFE said. "We will keep the high-profile stance to crack down on hot money and deal with illegal forex settlements."
The top currency regulator settled 1,865 criminal cases in the first half of this year involving US$16 billion in foreign currency, the statement said. Hot money, or speculative foreign capital, poses a great threat to China's efforts to manage liquidity and tame inflation.
The country's consumer price index rose 6.4 percent in June, the fastest pace in 32 months. Money supply grew nearly 16 percent by the end of June from a year earlier.
Frequent interest rate rises and the yuan's continued appreciation amid still robust economic growth was luring outside capital to seek better returns in the country.
The central bank has increased benchmark interest rates five times since last October, and raised banks' reserve requirement 12 times since January last year to contain inflation.
The People's Bank of China yesterday set the central parity rate of the yuan at 6.4386 against the US dollar, the highest in 17 years.
The Chinese currency has risen nearly 5 percent from the same period last year, and economists predict that it will reach 6.30 against the dollar by the end of the year.
Money inflow
Some US$35.5 billion of hot money entered the country last year, accounting for 7.6 percent of new foreign reserves in 2010, the foreign exchange regulator said. Hot money inflow is estimated at US$25 billion annually in the past 10 years, it said.
Market watchers have warned emerging economies that there will be challenges from cross-border capital flows against a backdrop of loose monetary policies in major developed countries and excess global liquidity.
The foreign exchange regulator said it will tighten regulations on banks' forex business and will step up measures to combat underground forex markets and illegal online trading.
The watchdog will further turn down the size of banks' short-term external debt, and will strictly inspect capital settlement and external debt of financial institutions and large enterprises.
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