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Official warns of huge 'hot money' inflows
(Agencies)
Updated: 2005-03-21 15:17

China's foreign exchange chief has stepped up his attacks on massive fund inflows, warning of "excessive speculation" in the property market.

Guo Shuqing, director of the State Administration of Foreign Exchange, answers reporters' questions in this March 7, 2005 photo. Guo was named candidate chairman of the China Construction Bank Ltd Co after the bank's former chairman Zhang Enzhao resigned earlier last week. [newsphoto]

"Indiscriminate support of exports and foreign capital influx has created short-term economic problems," said Guo Shuqing, director of the State Administration of Foreign Exchange, according to Xinhua news agency.

The problems include "excessive speculation in the property market and the economic decoupling of the fast-growing coastal areas with the rest of China," Guo was quoted as saying.

He said his administration had spotted foreign funds that entered China disguised as money for trade or direct investment purposes but ended up being used to buy financial assets and property.

"We found the phenomenon of one single (overseas) person buying up to 100 houses in coastal cities," Guo was quoted as saying. "This is apparently speculative activity."

It is not the first warning from Guo, who is reportedly about to take over the reins at China Construction Bank after its chairman resigned amid corruption allegations.

Earlier this month, Guo warned of "no end of trouble for the future" unless local governments were made aware of the risks of soaking up foreign funds.

China's foreign reserves in 2004 soared to a record US$609.9 billion from US%403.3 billion in 2003, with China now second only to Japan in the amount held.

Observers believe that part of the inflow could be speculative money betting that China will have to raise the value of its currency, the yuan.

Workers paint Chinese characters on the wall of a new development in Beijing. China's foreign exchange chief has stepped up his attacks on massive fund inflows, warning of 'excessive speculation' in the property market. [AFP/file]

These theories were boosted last month when China published balance of payments statistics for 2004 showing a net errors and omissions entry worth a positive US%20 billion.

No explanation for the errors and omissions figure was given but in the past some analysts have said they may indicate irregular capital flows, which up until recently had been largely negative.

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