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Experts beware yuan rise as hot money risk brews

(Xinhua)
Updated: 2009-10-21 13:29

China was facing renewed pressure to let the yuan strengthen as an "undervalued yuan" was again the focus of international conferences, including the gathering of the Group of Seven (G7) and the Group of 20 (G20), and the US dollar weakened, he said.

Although Chinese equity prices had fallen sharply since August, they still had room to increase during the rest of this year, he said, and housing prices, already very high, were likely to continue rising.

Related readings:  Hot money influx raises concerns  Officials work to stop flow of 'hot money'  Brake on hot money leads to drop in FDI  China gets $122b hot money influx in Q2

The hot money inflow was also a result of the Chinese economy performing better than those of other countries, Sun said.

The world's third largest economy, China's economy grew 7.1 percent in the first half. Although it was much lower than the double-digit annual growth during the 2003-2007 period and the first two quarters of last year, it was still among the fastest-growing economies in the world.

The government set an annual target of 8 percent for this year, which would not be a problem, Xiong Bilin, an official with the National Development and Reform Commission, the country's top economic planner, said Monday.

However, Zhang warned the asset bubble could burst if hot money flowed out, which was also likely to cause depreciation of the yuan in the short term.

"To avoid such situations, the Chinese government must take precautionary measures, such as enhancing supervision of capital flows into and out of the country, adjustment of domestic credit policy and reining in asset prices by increasing supply," he said.

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