China tackles inflows of 'hot money'

08:25, November 10, 2010      

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Monetary authorities vowed Tuesday to beef up tracking on foreign capital inflows in an effort to stop speculative funds from flooding into China, following the latest US stimulus measures that experts said have set off alarm bells for the nation.

The pledge was timed to coincide with two senior central bank officials' warnings over possible inflation and market bubbles in the wake of the US Federal Reserve's second round of quantitative easing (QE2) an-nounced last week.

"With the US restarting quantitative easing, we will pay greater attention to inflation and every change in the economy index," Du Jinfu, assistant governor of the People's Bank of China, said Tuesday at a forum held in Beijing.

Separately, Ma Delun, another central bank assistant governor, said, "The US should not only base its currency policies on its own interests, but also to stabilize the global economy."

The State Administration of Foreign Exchange said in a statement Tuesday that it would strengthen the system on monitoring foreign funds in order to keep close track on the whereabouts of capital flows. The government will tighten the management of banks' foreign-debt quotas and introduce new rules on their currency provisioning, the statement said.

Song Guoliang, a professor with the School of Banking and Finance at the University of International Business and Economics, told the Global Times Tuesday that the current foreign exchange regulation policy is effective in controlling the inflow of capital in large sums, but China should guard against the inflow of capital from private and illegal channels.

"We cannot afford to ignore such money flowing into the Chinese market. It comes from underground banks or fake trade orders. But, from our previous experience, the inflow of hot money will not do devastating damage to China's financial markets under the current financial surveillance program," Song said.

Michael Pettis, a Beijing-based finance professor, said over-intervening in the market would lead to an increase of illegal money flows, which are untraceable and hurt the market system in the long term.

By Liu Linlin, Global Times
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(Editor:梁军)

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