China’s State Administration of Foreign Exchange estimated US$35.5 billion of so-called “hot money” flowed into Asia’s largest economy last year, 42 percent more than the average in the past decade.
The figure accounted for 7.6 percent of the accumulation in foreign-exchange reserves, the currency regulator said in a report published on its Web site yesterday. The average annual net inflow of hot money, or short-term speculative capital, was about US$25 billion in the last 10 years, the administration said.
“This suggests that the hot money issue is not a major problem for managing the currency, nor a key source of asset price bubble threat,” said Dariusz Kowalczyk, a senior economist at Credit Agricole CIB in Hong Kong. “This may reduce worries that rate hikes will attract more such flows, allowing the central bank to continue the relatively fast pace of hikes.”
The People’s Bank of China has raised major lenders’ -reserve-requirement ratios seven times since the start of last year to help drain funds from the financial system. The bank boosted borrowing costs last week for the third time in four months to help damp inflation. It has permitted the yuan to strengthen 3.6 percent since a two-year dollar peg was scrapped on June 19.
China’s foreign-exchange reserves, the world’s largest, increased by a record US$199 billion in the fourth quarter to US$2.85 trillion, the bank said on Jan. 11.
The administration pledged to monitor cross-border capital flows and expand outflow channels, in a statement accompanying the report.