Investment

Capital inflows 'remain modest'

By Wang Xiaotian (China Daily)
Updated: 2010-10-20 08:20

BEIJING - Financial capital inflows to China and their impact on the economy remain modest given the limited amount and the country's capital controls, an economist from the World Bank said on Tuesday.

"China is seeing some capital inflows, most of which are foreign direct investment in long-term inflows. It is also seeing some financial inflows," said Louis Kuijs, a senior economist at the World Bank China office. "But China has very elaborative, very comprehensive capital controls. When you look at it in terms of data, the role of financial capital inflows in China and its influence on the economy is actually rather modest."

"Mass capital inflows, which used to cause some chaos in countries such as South Korea and Thailand during the Asian financial crisis in 1997 and 1998, could benefit the Chinese economy if well managed," he said.

"Capital inflows can cause problems for (some) countries, but there is strong recognition that over the longer term, international capital flows tend to benefit the country as long as it is properly managed."

He said it is not a good idea for China now to relax its capital control on inflows.

"If China moves over time to a more market-determined exchange rate, I think once the currency regime becomes more flexible, that might be a proper time to make some steps in liberalizing capital inflows," Kuijs said.

China has been worried by any illegal capital inflows that could be used to speculate in the country's already white-hot real estate sector and the volatile stock market. Experiences in other countries show that the sudden inflow and outflow of international capital could lead to financial chaos, analysts said.

Xia Bin, senior economist of the State Council's Development Research Center, said on Monday that the loose monetary stance of the United States could lead to a new round of speculative capital inflows into China.

The State Administration of Foreign Exchange said last week that due to yuan appreciation expectations and volatile international markets, China is facing huge pressure from capital inflows.

Tang Min, deputy secretary-general of the China Development Research Foundation, said the government might set out further measures to counter imported inflation brought by a new round of hot money inflows in the coming one or two quarters.

China Daily