Chinesepod - Hot money: Over $100 billion in 1st half

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BIZCHINA / Center

Hot money: Over $100 billion in 1st half

By Ding Qi (chinadaily.com.cn)
Updated: 2007-08-09 14:59

How did over $100 billion of hot money flow into China in the first half
alone despite the nation's strict control on foreign exchange?

According to statistics from the Ministry of Commerce and from Chinese
customs, $120.9 billion added to China's foreign reserves came from
unknown sources.

In an analysis by International Financial News, money can enter China
through illegal channels including massive payments or money transfers
through fictitious trade claims or false contracts under the guise of
normal trade and investment.

Related readings:
?Hot money inflows to be curbed
?Central bank calls for supervision of speculative capital
?June FDI rises 21.91% to $6.63b
?More foreign capital flows in property sector
?China tightens rules on foreign property investors

Direct investment is another way for hot money to enter China's market,
according to some experts. Except for industrial and commercial
investment, which has few limitations for settlement of foreign currency,
the Qualified Foreign Institutional Investors (QDII) system is more
lenient in allowing foreign investors to change their funds into renminbi
and buy securities.

The influx of hot money could pressure the central bank in terms of
currency supply and cause serious liquidity problems. It could also
disturb the monetary policy of the government, and even endanger the
nation's financial security, according to the report.

So far, the government has taken a series of measures to curb the illegal
inflow of hot money and guide foreign investment in a reasonable way.
However, some experts said it is hard for the government to eliminate hot
money altogether, because the country had committed to reforming its
financial system and making it more open internationally.

According to Mei Xinyu, an official with the economy and trade research
department of the Ministry of Commerce, it is impossible to rid the
country of overseas speculative funds completely, since the money itself
was a product of excess global liquidity. Financial authorities of all
nations should work together and gradually bring it under control.
Therefore, curbing hot money requires a?long-term campaign.

(For more biz stories, please visit Industry Updates)

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