(Xinhua)
Updated: 2008-05-08 23:44

BEIJING  -- "Hot money", or speculative capital, is becoming an increasingly important concern for Chinese regulators as anticipation of an inflow surge strengthens along with a widening gap between interest rates in the United State and that in China.

The exact amount of "hot money" into the country would be difficult to discern, however, there is indeed an acceleration of capital influx into the Chinese market as investors bet on a stronger yuan and rising domestic interest rates.

The influx of international capital was accelerating with investors seeking profits from the interest rate gap and a stronger yuan via arbitrage transactions, said Li Yang, director of the Institute of Finance and Banking under the Chinese Academy of Social Sciences.

The US Federal Reserve has cut the country's interest rates seven times since September, down from 5.25 percent to 2 percent, to shore up the economy threatened by the still unfolding credit crisis.

In the opposite direction, China's central bank last year raised the domestic benchmark interest rate six times to offset inflationary pressure, up from 2.52 percent to 4.14 percent.

Chinese currency gained more than 4 percent against the weakening US dollar in the first quarter, the biggest quarterly gain since China depegged yuan with the greenback in 2005.

"Arbitrage transactions will render investors at least a 10-percent return on investment," Li said.

The world's speculative capital is anxiously turning to emerging markets to seek shelter from the international financial market turmoil.

Zhang Ming, a financial researcher with the Chinese Academy of Social Sciences, said the rapidly rising asset prices on China's capital and real estate markets also arrested some speculative funds.

Recently published statistics showed the country's foreign exchange reserve in the first quarter stood at 153.9 billion US dollars, compared with a combined 70 billion US dollars in trade surplus and actual use of foreign investment in the same period.

Some analysts said the gap between the two numbers indicated the influx of "hot money"into China could be tens of billions of US dollars in the first quarter.

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