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China steps up battling hot money ahead of G20 summit
By Wang Yanlin |
November 9, 2010, Tuesday
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Online Edition
Online Edition
CHINA will tighten control over the auditing of overseas fundraising and demand banks to hold more foreign exchange as part of efforts to tackle with the inflow of hot money.
The stern stance came just before leaders of the world's major economies will gather in a G20 summit on Thursday in Seoul, South Korea. The summit will have leaders discuss prospects of the world economy after the United States announced another round of easing monetary policy last week, which may push liquidity into emerging markets and stoke more concerns about inflation.
In a statement released today, the State Administration of Foreign Exchange said China will strictly manage banks' short-term foreign debt quota and introduce new rules on covering their exposure to currency risk.
China will also regulate Chinese special-purpose financial vehicles overseas and strengthen controls on equity investment made by foreign companies in China in a bid to guarantee the country's economic and financial security.
"China is under growing pressure of hot-money inflow as speculators bet more on a stronger yuan and prosperity in China's stock and housing markets," said Deng Xianhong, deputy director at the exchange. "More money supply in some major developed economies will also accelerate the flow of hot money."
Hot money is speculative fund moving from markets to markets without virtual trade or investment activities. It does no good to real economy but helps to fuel inflation and create bubbles.
Last week, the US Federal Reserve said it plans to purchase US$600 billion worth of government bonds in a bid to revive its sluggish domestic economy.
The second round of "quantitative easing", after the first following the global financial crisis, has instantly triggered worries that the near-zero US interest rate and a weak dollar will push liquidity into Asian countries, potentially destabilizing emerging markets.
The stern stance came just before leaders of the world's major economies will gather in a G20 summit on Thursday in Seoul, South Korea. The summit will have leaders discuss prospects of the world economy after the United States announced another round of easing monetary policy last week, which may push liquidity into emerging markets and stoke more concerns about inflation.
In a statement released today, the State Administration of Foreign Exchange said China will strictly manage banks' short-term foreign debt quota and introduce new rules on covering their exposure to currency risk.
China will also regulate Chinese special-purpose financial vehicles overseas and strengthen controls on equity investment made by foreign companies in China in a bid to guarantee the country's economic and financial security.
"China is under growing pressure of hot-money inflow as speculators bet more on a stronger yuan and prosperity in China's stock and housing markets," said Deng Xianhong, deputy director at the exchange. "More money supply in some major developed economies will also accelerate the flow of hot money."
Hot money is speculative fund moving from markets to markets without virtual trade or investment activities. It does no good to real economy but helps to fuel inflation and create bubbles.
Last week, the US Federal Reserve said it plans to purchase US$600 billion worth of government bonds in a bid to revive its sluggish domestic economy.
The second round of "quantitative easing", after the first following the global financial crisis, has instantly triggered worries that the near-zero US interest rate and a weak dollar will push liquidity into Asian countries, potentially destabilizing emerging markets.
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