SAFE Says Hard to Judge if Hot Money Flowing in

飞雪寒冰

China's net inflows of foreign exchange have risen month-on-month because the pace of capital outflow has slowed, according to an official with the State Administration of Foreign Exchange.

Data released by the central bank show that outstanding foreign exchange funds, or yuan that China's banks use for buying foreign currency, hit a new high of 242.6 billion yuan in May, raising speculation of massive hot money inflows.

"It is hard to tell if the hot money is returning to China," Guan Tao, deputy director of the balance of payments department at SAFE said at a forum here June 25.

Slower foreign exchange outflows were triggered by expansionary monetary policies adopted by central banks around the world, Guan said.

The major problem for China now is that the supply of foreign exchange exceeds demand, he added.

Expectation of an appreciation of the yuan has caused an increase in foreign exchange holdings, according to analysts, as the private sector is more willing to exchange their foreign currency holdings for yuan-denominated assets.

However, Guan said it is not appropriate to explain capital flows in terms of expectations of fluctuations in the yuan's value.

飞雪寒冰

"This year, expectations of an appreciation in the value of the yuan have failed to match that seen in the first half of last year," Guan said, adding that forward exchange rate contracts recently showed a tendency towards the dollar.

As of the end of March, China's foreign exchange reserves hit a record high of US$1.95 trillion.

SAFE has been closely monitoring both the inflow and outflow of capital, and is focusing on regulating the balance of payment via market tools, instead of administrative methods, Guan said.

China, now the biggest capital exporter with abundant foreign exchange as well as yuan, is offering much financial support for Chinese enterprises going overseas, Guan added.