China needs to better manage its exchange rate to curb accelerating inflows of “hot money” that pose a threat to the economy, the finance and economic committee of the nation’s legislature said.
The country needs to counter expectations for the yuan to keep rising, the committee’s economic office said in a report published by the state-run Xinhua News Agency today.
Inflows of speculative capital may stoke inflation and destabilize the financial system in the event of sudden outflows. The government said July 18 that it was tightening scrutiny of foreign investment in the world’s fourth-biggest economy as part of a crackdown on channels for so-called hot money.
“The government needs to control expectations that the yuan will continue to appreciate at a steady pace,” said Sherman Chan, an economist at Moody’s Economy.com in Sydney. “One way would be to revalue the currency.”
Read also China’s `Hot Money’ Crackdown Won’t Halt Yuan Buying by Kim Kyoungwha and Judy Chen.