Hot Money Inflows Up To $85 Billion In The First Quarter, Pushing Prices Up.

In April 24th, the Shanghai and Shenzhen stock markets ushered in the biggest daily gain in nearly 4 months.

On the same day, the Shanghai composite index was close to 3600 at the time when the stamp duty rate of the stock market was reduced from 3 per thousand to 1 per thousand.

However, how much foreign hot money has entered the Chinese stock market near the limit?

On the same day, at the 2008 International ferroalloy summit held by the Asian metal net, Zhu Baoliang, chief economist of the National Information Center's Economic Forecasting Department, pointed out that the rapid development of China's economy, higher interest rates and faster appreciation of the renminbi accelerated the pace of international capital entering China. The hot money has increased by 2 times since last year's first quarter, or about 85 billion US dollars.

Such abnormal foreign exchange will also increase the pressure of domestic consumer price (CPI) to rise further.

Zhu Baoliang expects prices to rise by more than 6% throughout the year.

Accelerated inflow of hot money

According to the data released by the Central Bank of China and the General Administration of Customs in April, China's trade surplus was US $41 billion 420 million in the first quarter of this year. The actual use of foreign direct investment was US $27 billion 414 million, and the sum of the two countries was only us $68 billion 800 million. However, the foreign exchange reserve increased by US $153 billion 900 million over the same period, so that about $85 billion could not be found.

Zhu Baoliang pointed out that the $85 billion which can not be explained is of the nature of hot money.

On a monthly basis, about $30 billion a month, much higher than the average of US $10 billion per month last year, and the speed of hot money flowing into China is accelerating.

Hot money favors China, mainly because the current benchmark interest rate in China is about 2 percentage points higher than that in the United States, and with the acceleration of RMB appreciation, foreign investment in China can achieve stable and expected returns every year.

The key is also that China's economy is still growing rapidly.

At the fourth annual meeting of China Finance (expert) held in April 20th, Tang Xu, Secretary General of the China Finance Association, pointed out that the rapid growth of China's economy and the better profitability of enterprises have provided the attraction for hot money.

In 2007, the profits of all kinds of enterprises in China reached 30% and 18% respectively.

Zhu Baoliang agreed with this view.

He analyzed that China's economic growth this year is a conservative estimate of 10%, which is expected to be around 10.5%, better than expected.

The reason is the impact of reconstruction after the disaster, investment is still accelerating, and consumption growth is more than 12% this year.

Even if the contribution of trade to the economy is declining, the economy is still growing rapidly.

Prices continue to push up.

The price increase may exceed 6% in 2008, because "many factors are more serious than we originally thought."

Zhu Baoliang pointed out.

First, the high prices at the end of last year made CPI even more than 3.4% of the price rise this year, and the new price increase in the first quarter of this year led to a 3% increase in prices.

Therefore, taking into account the factors such as the tail up factor, the price increase of agricultural products, and the factors that increase the price of resource products, labor costs and inflation expectations, the monetary policy in 2008 should be implemented with a tight policy.

He said the price increase was about 8% in the first half and about 5% in the second half.

Therefore, some measures to implement energy saving and emission reduction, such as raising electricity prices, are best implemented at the end of the year.

However, the problem of hot money inflow can push prices up.

If the monthly hot money flows to US $30 billion per month in the first quarter of this year, it will reach US $360 billion for the whole year, and RMB will need to hedge 2 trillion and 500 billion yuan.

If only the reserve requirement ratio is raised, there will be limited control space.

"If M2 is controlled at around 16%, the overall inflationary pressure will not be too great."

Zhu Baoliang said.

According to the central bank's data, the balance of broad money supply was 42 trillion and 310 billion yuan at the end of 3 in 2008, an increase of 16.29% over the same period last year, an increase of 0.45 percentage points lower than the end of last year, and 1.19 percentage points lower than the end of last month.