New controls tackle hot money
By Wang Yanlin |
November 10, 2010, Wednesday
|
Print Edition
Print Edition
CHINA will tighten control over the auditing of overseas fundraising and demand banks to hold more foreign exchange in an effort to stem the inflow of hot money.
This tough stance was taken as leaders of the world's major economies prepare to gather for the G20 summit tomorrow in Seoul, South Korea.
On the agenda for discussion will be the announcement by the United States last week of another round of its quantitative easing monetary policy. This could push liquidity into emerging markets, stoking up inflation concerns.
Hot money is funds moved by speculators from market to market without real trade or investment activities. It does not benefit the real economy but helps fuel inflation and create bubbles.
In a statement released yesterday, 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.
The government will also regulate Chinese overseas special-purpose financial vehicles and strengthen control on equity investment made by foreign companies in China in a bid to guarantee the country's financial security.
"China faces the prospect of a hot money inflow as speculators bet more on a stronger yuan and prosperity in China's markets," said Deng Xianhong, deputy director at the exchange. "Increased money supply in some developed economies will also accelerate the flow of hot money."
But Deng said hot money was entering China through various projects and investment. China's foreign exchange regulator is on the lookout for hot money, which can enter the economy 'disguised' as trade investments.
Last month it warned suspicious money was entering the country at a faster rate than previously. The regulator says China had investigated 190 cases of hot money inflows worth US$7.35 billion by July - the equivalent of a standard month's foreign investment.
Last week, the US Federal Reserve announced that it plans to purchase US$600 billion worth of government bonds in a bid to revive its sluggish domestic economy.
This round of quantitative easing - the first followed the global financial crisis - has triggered concerns that the near-zero US interest rate and a weak dollar will push liquidity into Asian countries, potentially destabilizing emerging markets.
The appreciation of the yuan is a major attraction for speculators.
The Chinese currency has strengthened by more than 2 percent against the US dollar since the People's Bank of China pledged on June 19 to increase exchange rate flexibility. The Consumer Price Index in China is expected to hit a two-year high of 4 percent in October.
This tough stance was taken as leaders of the world's major economies prepare to gather for the G20 summit tomorrow in Seoul, South Korea.
On the agenda for discussion will be the announcement by the United States last week of another round of its quantitative easing monetary policy. This could push liquidity into emerging markets, stoking up inflation concerns.
Hot money is funds moved by speculators from market to market without real trade or investment activities. It does not benefit the real economy but helps fuel inflation and create bubbles.
In a statement released yesterday, 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.
The government will also regulate Chinese overseas special-purpose financial vehicles and strengthen control on equity investment made by foreign companies in China in a bid to guarantee the country's financial security.
"China faces the prospect of a hot money inflow as speculators bet more on a stronger yuan and prosperity in China's markets," said Deng Xianhong, deputy director at the exchange. "Increased money supply in some developed economies will also accelerate the flow of hot money."
But Deng said hot money was entering China through various projects and investment. China's foreign exchange regulator is on the lookout for hot money, which can enter the economy 'disguised' as trade investments.
Last month it warned suspicious money was entering the country at a faster rate than previously. The regulator says China had investigated 190 cases of hot money inflows worth US$7.35 billion by July - the equivalent of a standard month's foreign investment.
Last week, the US Federal Reserve announced that it plans to purchase US$600 billion worth of government bonds in a bid to revive its sluggish domestic economy.
This round of quantitative easing - the first followed the global financial crisis - has triggered concerns that the near-zero US interest rate and a weak dollar will push liquidity into Asian countries, potentially destabilizing emerging markets.
The appreciation of the yuan is a major attraction for speculators.
The Chinese currency has strengthened by more than 2 percent against the US dollar since the People's Bank of China pledged on June 19 to increase exchange rate flexibility. The Consumer Price Index in China is expected to hit a two-year high of 4 percent in October.
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