China says capital inflow abnormal
Posted by | Posted in Business News | Posted on 09-07-2010
BEIJING, July 8 (UPI) — China faces abnormal flow of capital into the country, blamed partly on expectations of appreciation of the yuan, the government said.
The pressure is expected to continue as a result of these expectations, China Daily reported Friday, quoting analysts. The State Administration of Foreign Exchange, China’s foreign exchange regulator, was quoted as saying the interest rate difference between the yuan and the U.S. dollar, currently about 2 percentage points, is another reason for more money coming into the country.
China, under international pressure to let its under-valued yuan appreciate, decided June 19 to make the currency more flexible against a basket of currencies instead of making a one-off revaluation and end a two-year yuan peg to the dollar.
This has led to expectation the yuan would gradually appreciate against the U.S. dollar, the report said.
Analysts told China Daily while the yuan will not dramatically rise against the dollar immediately, it would do so gradually.
“The expected gradual appreciation, however, would lead to continued inflows of speculative capital,” economist Li Jianjun at the Central University of Finance and Economics said.
The report said the yuan has risen more than 0.7 percent against the dollar since the June 19 decision. It said the United States, however, maintains the appreciation is far too slow despite Chinese concerns a faster appreciation would hurt its trade and economic growth.
China’s central bank said Thursday it will maintain its moderately loose monetary policy while closely monitoring the situation and ensuring proper growth of lending.
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