inside china

• China has not seen a surge in “ hot money“  ( Money that flows regularly between financial markets as investors attempt to ensure they get the highest short-term interest rates possible. Hot money will flow from low interest rate yielding countries into higher interest rates countries by investors looking to make the highest return. These financial transfers could affect the exchange rate if the sum is high enough and can therefore impact the balance of payments),
  coming into the country, the country’s foreign exchange regulator said on Thursday, despite the loose monetary policy in the US that Beijing has sometimes blamed for causing destablising capital inflows.
  
• A net $35.5bn of hot money, illegal speculative capital, entered the country last year, which was “ant-like” in comparison to the size of the economy, the   State Administration of Foreign Exchange said.
• The massive build-up in China’s foreign exchange reserves over the last five years, which are now by far the world’s largest at $2,850bn, has encouraged many analysts to speculate that large flows of overseas money were evading the country’s strict capital controls and finding their way into the local property and stock markets.
• As a result, a detailed research conducted to try and calculate the real level of hot money and found that it was relatively limited. “We have not found evidence of any large-scale capital inflows co-ordinated by any established financial institution,” the regulator said.
• On average over the last decade, hot money inflows were $28.9bn a year, equivalent to around 9 per cent of the increase in the country’s foreign exchange reserves. This compares to an economy now with nominal GDP of around $5,700bn and where new loans created last year reached Rmb 8,000bn.
• “The argument that cross-border capital flows are driving domestic stock market performance lacks evidence in the data,” said in a report.
• Given that Safe is the body charged with policing the country’s capital controls, it has a vested interest in showing that they are not being easily evaded by investors.
• However, the figures from the regulator will make it harder for Beijing to suggest that the  inflationary pressures in the chinese economy are the result of the build-up in liquidity in the international financial system caused by the US Federal Reserve policy of quantitative easing.
• In the run-up to the G20 summit in South Korea last November, when it looked that China might come under attack for artificially depressing the value of the renminbi, Beijing joined several other governments in accusing the US Fed of causing huge capital flows and inflation in the developing world.
• Zhu Guangyao, a deputy finance minister, said that the Fed “did not think about the impact of excessive liquidity on emerging markets by having launched a second round of quantitative easing at this time”.
• “If you look at the global economy, there are many issues that merit more attention – for example, the question of quantitative easing,” said deputy foreign minister Cui Tiankai, when asked about US proposals to limit current account surpluses.
• Inflation in China increased to 4.9 per cent last month, which was not as large a rise as had been expected, but was still well over the 4 per cent target the government has set for this year. While some economists believe the current bout of inflation is the result of short-term problems in food production, some others believe it has been caused by the huge expansion in credit that the Chinese authorities have engineered over the last two years to help the economy ride out the global financial crisis.