Foreign exchange reserve growth that cannot be explained by the
current account surplus and a net influx of foreign direct
investment increased in the first half of this year, potentially
signaling a hot money influx, said Ha Jiming, chief economist of
China International Capital Corporation Limited, yesterday.
Ha believes in a moderately accelerated renminbi appreciation
and that the pace of promoting monetary outflows should also be
stepped up.
The State Administration of Foreign Exchange recently released
China's balance of international payments for the first half of
this year.
The current account surplus reached US$162.9 billion in the
first half of 2007, up 78 percent year-on-year and accounting for
11.8 percent of GDP. The imbalance in international payments is
even more severe, according to Ha.
Capital account surplus also increased greatly. The item of net
error and omissions in the international payments hit US$13.1
billion in the first half year, a growth of US$21.5 billion
year-on-year. The chunk of foreign exchange reserve growth that
cannot be explained by the current account surplus and net influx
of foreign direct investment reached US$52.5 billion, accounting
for nearly 20 percent of the total increase in foreign exchange
reserves.
With the depreciating dollar in the background, global excess
liquidity and the influx of a great deal of capital into the
newly-emerging markets pushed up capital market risks in these
markets. China should adopt measures to prevent from asset price
bubble, Ha emphasized.
Ha said that China must choose between speed and stability in
its exchange rate appreciation. Slower appreciation will have less
influence on exports, but it will take longer time. This will lead
to a continuous fund influx in current account and capital account.
The domestic excess liquidity will be more severe following
speculative hot money. Moderately accelerated appreciation will
shorten the appreciation period, strengthen the effectiveness of
monetary policy and lower imported inflation.
Another potential policy alternative is to create a capital
efflux.
Renminbi appreciation may reach 6.5 percent for the year, with
7.3 yuan against the US dollar, Ha predicted. Renminbi will
appreciate?seven percent for the whole year of next year,
hitting 6.79 yuan against the US dollar by the end of next
year.
Ha maintains that the interest rates may rise by 27-54 basis
points this year but the imperativeness of interest rates hike is
lowered.
(Chinadaily.com.cn November 7, 2007)
