Source: CCTV.com

05-12-2008 11:27

China continues to be a major recipient for foreign direct investment. And besides investments, the country's booming economy is also attracting a lot of hot money--money that flows between financial markets in search of the highest short term interest. China's economic authorities say too much of that kind of speculation could have a negative impact on the economy.

China continues to be a major recipient for foreign direct investment. And besides investments, the country's booming economy is also attracting a lot of hot money--money that flows between financial markets in search of the highest short term interest. 
China continues to be a major recipient for foreign direct
investment. And besides investments, the country's booming
economy is also attracting a lot of hot money --money that flows
between financial markets in search of the highest short 
term interest.(Photo: nanfangdaily.com)

According to China's National Foreign Exchange Bureau, hot money enters China through multiple channels. Common ones are through false international trade, with false trading prices, and through diverting investment from manufacturing towards stock markets, real estate and art market.

Zhong Wei, director of Finance Research Center, Beijing Normal Uni., said, "We call it hot money, because it does not go into manufacturing. Instead, it goes to trade and speculation."

Though it's often hard to track hot money's movement, it's not difficult to figure out its volume.

It's newly added foreign exchange reserve deduct trade surplus and deduct foreign direct investment. In the first quarter, China's newly added foreign exchange reserve was 154 billion US dollars, trade surplus was 41 billion US dollars, foreign direct investment was 27 billion. So hot money was at least 86 billion US dollars since some of the direct investment could turn into hot money.

The figure was already 70 percent of the total volume of last year. And experts predict the total pool of hot money by the end of this year will reach 650 billion US dollars, equivalent to the amount of money that triggered the 1997 Asian financial crisis and crushed a number of economies.

In 2007, the Chinese yuan appreciated eight percent against US dollar, and the one year deposit rate in China is now more than 2 percent higher than in the US. That means, hot money could have had at least 10 percent annual return by simply staying in a Chinese bank with no risk at all. But experts point out most hot money has entered the stock market and real estate market for higher returns. And its inflow and outflow has partly contributed the drastic fluctuations of the A shares and bubbles in the housing market.

 

Editor:Zhang Ning