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

Zhu Baoliang, the chief economic analyst of the prediction department of the State Information Center (SIC), told an industry seminar last month the first-quarter speculative inflow exceeded 80 billion US dollars, compared with 120 billion US dollars for all of 2007.

Yet, Zhao Qingming, a senior manager of the research department with the China Construction Bank, said the increase in first-quarter forex reserve was also contributed to by earnings from earlier investment of forex reserve as well as by the sharp appreciation of currencies other than the US dollar.

He also said it was not accurate to analyze the scale of "hot money" simply from the gap between forex reserve and trade surplus plus the use of foreign investment.

Speculative capital inflows into China may climb to 650 billion US dollars by the end of this year, or 800 billion US dollars by the end of 2009, Zhong Wei, director of the financial research department under the Beijing Normal University, said in a recent report without elaborating on his calculation method.

He put the amount of hot money at 320 billion US dollars at the end of 2005, 400 billion at the end of 2006, and 500 billion US dollars at the end of last year.

"The excessive inflows of hot money would increase the country's liquidity, and add to the country's existing inflationary pressure," said Zhao.

"The speculative capital, if invested in stocks or housing, could push the country's asset prices up to an irrationally high level," said Mei Xinyu, a trade and foreign investment expert with the research institute of the Ministry of Commerce.

"If a massive amount of speculative funds withdrew from China, the normal operation of the country's financial system could be disturbed," Mei warned.

Zhao said the country needed to contain the anticipation of the yuan's further appreciation and keep asset prices within the range of their true value.

The interest rate gap between the US and China should also be kept within a certain range to curb arbitrage transactions, Zhang Ming added.

China's central bank governor Zhou Xiaochuan said in Brussels on Monday the central bank has always been closely monitoring the possible inflows of "hot money" into the country.

There could be new circumstances as more investors considered  short-term investment in China after recent repeated interest rate cuts in the United States, he said.

However, the abnormal capital flows in a relatively small amount would not affect the country's monetary policy, given the large size of the national economy.

China had the option of raising interest rates to control inflation, but there was a range of instruments available for that purpose, Zhou added.

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