Foreign Exchange News
- Regulator to curb short-term capital inflows
Date: 22-May-2007 Sources: (Shenzhen Daily)
THE foreign-exchange regulator said yesterday it will take action to prevent short-term capital inflows from hurting the country's financial system, after an investigation found some irregularities in trade and investment flows.
The regulator's comments underscore rising concerns that speculative funds might be entering China, helping boost share prices and increasing the risk of a bubble forming in local bourses.
In its balance of payments report for 2006 issued two weeks ago, the regulator said fund inflows resulting from China's external imbalances increase the risk of an asset bubble in property and stocks.
'Foreign-exchange reserves continue to rise...exerting a certain impact on the stability of the national economy,'the State Administration of Foreign Exchange said in a statement on its Web site. China's foreign-exchange reserves rose US$135.7 billion in the first quarter, growth that isn't fully explained by the government's data on foreign direct investment and the trade surplus.
The benchmark Shanghai Composite Index has risen about 50 percent this year, after more than doubling last year. Government data showed property prices in China rose 5.9 percent in March from the same month last year, picking up from February's 5.3 percent rise.
China's forex reserves, the world's largest, totaled US$1.2 trillion at the end of March, fueled by its large trade surpluses and strong foreign direct investments into the country. The flush liquidity in the financial system has been boosting share and property prices.
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