China stays vigilant on speculators
By Janet Ong Bloomberg News Wednesday, November 3, 2004
SHANGHAI China's top foreign-exchange regulator said Tuesday that it would intensify a crackdown on "speculative capital inflows" to preserve financial stability, seeking to deter bets on a yuan revaluation after last week's interest rate increase.
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Illegal foreign-exchange settlements by some banks and companies are hampering government efforts to cool growth in the Chinese economy, the State Administration of Foreign Exchange, or SAFE, said on its Web site.
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China raised its benchmark lending rate last week for the first time in nine years, stepping up efforts to rein in an economy that expanded 9.5 percent in the first nine months.
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The move prompted some analysts to say that the government was preparing to adjust the yuan's decade-old peg to the U.S. dollar.
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"Increasing interest rates may attract more hot money and that's why SAFE is reiterating that it wants to stop speculation," said Peter So, head of China research at Macquarie Securities in Hong Kong. "China's main concern is that the money flowing in and out rapidly will create financial volatility or a crisis."
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Capital inflows from abroad have pushed up China's money supply this year, undermining the government's efforts to slow economic growth and curb inflation by restricting bank lending.
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The yuan would advance to 7.997 per dollar in a year from the pegged rate of 8.277 if it were freely traded, forward contracts traded in Hong Kong showed Tuesday. Forward contracts allow investors to bet on the future value of a currency that is not fully convertible or to hedge investments that are denominated in it.
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In the first nine months, an audit covering 35 banks and 41 companies revealed illegal transactions totaling $120 million, the foreign exchange administration said. The regulator imposed fines of 1.01 million yuan and confiscated 101,000 yuan of funds.
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'Soft landing' is expected
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China's economic growth will slow next year to a range of 8 percent to 8.5 percent, helping the world's fastest-growing major economy achieve a "soft landing," according to a report by the State Development and Reform Commission's research institute.
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The institute also predicted that fixed asset investment would rise 18 percent next year, down from the 28 percent pace of the first nine months of 2004.
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"Though many long-term structure reforms remain, we see the overall economic climate in 2005 to be good," said the institute, the research unit of China's top economic planning agency. "We also see the slowdown in the growth of haphazard investments. We see the economy coming to a soft landing in 2005."
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