Sun Lijian: Why Do Hot Money Like China?

First, because of the intensification of inflation expectations, high savings in the banking system, not just personal savings, but also many enterprises' savings, are beginning to become uneasy, looking for quick and large investment channels.

Thereupon, hot money follows the domestic hot money which is full of information and flees and seeks for the vacuum zone with no supervision and high returns.

The property market has been shut down. So many agricultural products are hard to control. When the regulatory authorities noticed the whereabouts of hot money, the prices of agricultural products had been highly fired, and they began to look for new speculative opportunities.

In a word, today's hot money is especially difficult to fish in China in the presence of large amounts of spare cash.

Second, the escalation of trade war between China and the United States and the severe inflation problem have increased the expectation of RMB appreciation and interest rate increase. In addition, the trend of RMB internationalization has become more and more obvious recently. The paction cost of foreign exchange earning will be greatly reduced in the future. Therefore, all these expectations of increasing returns on the safety investment of the Chinese people's currency will further strengthen the motivation of the market to absorb large amounts of Renminbi chips today.

Moreover, the convenience of exchange in Hongkong has released this signal today.

Third, after the outbreak of the financial crisis, governments were involved in the bailout activities. The economic efficiency and economic scale reflected China's strength of economic development in the forefront of most countries, including Europe and the United States, by the strength of the government today.

As a result, the Chinese government's determination and bottom line to make the economy better actually equal the "hot money" to buy "insurance" in China's safe investment.

Even in the United States, where the financial market is very mature, it is impossible for the world's investors to feel secure because of the deterioration of the fundamentals today.

Fourth. Today, China's economy is still in a stage of development which needs to accumulate primitive wealth. The general public's preference for financial investment is higher than that of countries and regions with abundant wealth (or perfect social security).

But consumption can not be fully reflected because of the constraints of income and wealth.

Therefore, the "capital banquet" enjoying the demographic dividend is more abundant than any other country or region in the world. Besides, we have quite high national savings.

In a sense, today's monetary policy in the United States has played a role in driving us out of the bank and meeting the motives of hot money to fish in troubled waters.

Fifth, the low interest rate and quantitative easing monetary policy adopted by the United States, Europe and Japan is aimed at getting rid of the severe financial deflation of the country and the region after the financial crisis.

However, as the economic fundamentals are still deteriorating or the real economy is short of new growth point support, a large number of funds that have been alleviated by liquidity have rapidly entered into the commodities and agricultural products markets needed for the survival and development of the emerging market countries, and the other part has entered the "carry trade" (from the US low cost capital to China's high earning assets) in the emerging market countries with high savings and high yields represented by China.

The former makes money by "free riding", while the latter relies on investment skills to make money.

Sixth. Hong Kong dollar is a currency board system closely linked to the US dollar. This means what monetary policy the United States adopts. Hongkong has to follow the same monetary policy. As a result, the Hongkong people expect the Hong Kong dollar to depreciate more and more, and see that the Chinese government's attitude towards inflation is very firm. This naturally generates the motivation to replace the Hong Kong dollar as a reserve asset with RMB.

Because of this

Second, the inflow of hot money easily leads to asset bubbles.

Because the Chinese people have strong motivation to pursue wealth, so hot money will fish in troubled waters.

Moreover, because of inflation, bank funds will flow into the high yield and high-risk stock market and futures market. Once the government interferes with the healthy development of the stock market and other capital markets, it will affect the household wealth of the ordinary people, thereby affecting their ability to consume and resist the impact of inflation and financial crisis.

Although we can control foreign investment through QFII and other channels today, hot money will go all the way to meet the needs of the public to create wealth, so we will find them everywhere after all.

Moreover, the Chinese society has strong learning effects and local advantages. It also earned more profits than overseas hot money through the speculation and stock market operations of the early stage. However, if China's real economy was overshadowed by this false prosperity, many industrial capital would also find opportunities to enter the field and co deal with hot money.

Once the hot money is out of the market in the future, whether we are in the market or lucky enough to stay outside, we will pay for the collapse of the bubble.

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In addition, the influx of hot money will increase the difficulty of China's monetary policy in coordination with industrial upgrading and structural adjustment, because a large amount of foreign exchange will bring the effect of RMB appreciation and liquidity increasing. Finally, in order to guarantee the real economy's capacity, the central bank must not passively tighten up its funds, which will probably affect the normal capital needs of economic development.

Of course, we can not deny that these hot money is very disobedient. It seems that at a certain stage it is very quiet, and even paralyzed to use it to contribute to the development of the industry. However, once the geopolitical events such as the US interest rate hike or the Korean and Korean development occur in the future, there will probably be a large number of foreign collective departure. The East Asian crisis in 1997 is the most convincing case of this tragedy.

On the other hand, this collective departure is likely to overreact our domestic capital and cast a heavy shadow on China's economic development.

Based on the harmfulness of hot money to China's economic development, we should come up with effective management methods.

However, because of their activities in the dark, our supervision is in the open, so simply digging a pool to make them willing to hook is a bit too optimistic. Here, I want to talk about policy recommendations from two aspects of "blocking" and "sparse", so as to improve the ability to control the negative effects of hot money.

In blocking the hot money, we can consider the following policy combination:

1., strengthen foreign exchange management and capital management.

In particular, the departments of safe, MOFCOM, CBRC, SFC and other departments should ensure smooth information and policy coordination.

2., punishment should be adopted in time for finding problems.

Even in the market with many problems, we can take the lead in increasing the paction cost of "Tobin tax".

3. take targeted measures to limit the number of pactions.

Although it is a double-edged sword, it can not afford hot money, let it stand automatically, and then we can relax control.

4., continue to crack down on speculation in commodity markets, thereby reducing market inflation expectations.

5., we must legislate and formulate rules and regulations for industrial capital to crack down on illegal use of funds.

As soon as possible, eliminate misappropriation of funds, abuse of public funds and other acts, thereby alleviating the problem of fluidity to a certain extent.

6., by adjusting the exchange rate and adjusting imports and other means to alleviate the unilateral appreciation of the renminbi, we should also reduce market expectations for raising interest rates by using strategic reserves, adjusting the market supply and demand imbalance structure, and cracking down on speculation and other effective ways to control prices.

We also have some policies to consider in terms of "Persuasion" of hot money.

1., through tax levers such as increasing inheritance tax and lowering corporate income tax, many of today's financial speculative capital is pformed into charitable capital to support industries (reducing asset bubbles).

At least let the hot money do not hide in idle funds, so that our supervision can not start.

2. guide hot money or hot money to be concentrated in a financial investment place, so that it is easy to supervise and facilitate the use of it to serve the real economy.

In this sense, the choice of the stock market is better than the property market.

So long as a promising enterprise can pform low-cost capital into industrial capital conducive to the development of the country under the protection of system and supervision, it can solve the problem of fluidity today.

3., we should continue encouraging foreign investment enterprises to invest in medium and long term industries, and bring win-win results to China through the development of China's economy. However, we must also prevent domestic enterprises from being involved in the vortex of "currency mismatch" (short-term loans, long-term utilization).

In addition, we need to take some precautions to avoid "alarming" hot money leaving the market in our unprepared circumstances and to overreact the Chinese market.

This requires us to solve several unfavorable factors that affect the deterioration of China's economic fundamentals as soon as possible: first, control the local debt problem and ease the credit risk of China's financial institutions. Two, we need to adopt a coordinated policy system, so that we do not let hot money make use of our conflicting policies to earn their risk-free earnings.

For example, the exchange rate remains stable while promoting the internationalization of RMB.

Three, we should pay attention to ensuring the healthy operation of banks, that is, in strengthening the management of bank credit creation, we also need to improve the profitability of banks' intermediary business.

Otherwise, the bank's savings resources, accompanied by inflationary expectations, are likely to have some trouble with the disobedient "hot money".

Finally, we need to set up a pparent early warning mechanism and intervention measures to prevent the market from overreacting in the face of the implementation of the sudden policy.