China tackles inflows of 'hot money' (2)

08:26, November 10, 2010      

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"In China, hot money flows in illegally. Most of it comes in through small businesses that have operations in both China and abroad. Since it's never been declared, it's very difficult to detect," he said.

Zhou Xiaochuan, governor of the central bank, said Friday that Chinese regulators would work to prevent abnormal capital inflows by bolstering foreign exchange controls and maintaining overall liquidity at a proper level.

The US Federal Reserve's move of absorbing $600 billion worth of long-term bonds and keeping interest rates low allows money to flow from the US to emerging economies, such as China, where interest rates are higher.

Though the pressure from hot money in is increasing, China is not facing any danger of a massive influx at this moment, Deng Xianhong, vice director of the State Administration of Foreign Exchange, said in an interview with China Central Television.

Deng said he believes the expectations of a yuan appreciation, a stock market boom and rising real estate prices are the main reasons for hot money targeting China.

Though China has already closed down 13 large illegal private banks this year, he suggested that related foreign exchange departments should also promote reform and the facilitation of investment and trade.

Deng said monetary authorities should properly handle the relationship between cracking down on hot money and the improvement of the foreign exchange management system.

Song Shengxia and agencies contributed to this story

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