Continuous Inflow of Hot Money Will Affect the Chinese Market
With the Fed on Nov. 3 announced the implementation of the "second accommodative" monetary policy, massive liquidity injected into the market, commodities, grain, crude oil and other fields, and other higher yielding assets, economies will be affected. The emerging economies of China as a representative, but also the exchange rate is considered significantly undervalued, so China is "hot money" flowing into the preferred object. "Hot money" inflows, coupled with higher inflation, currency appreciation, asset bubbles, China's economic development is bound to bring a lot of trouble.
How China will resist the oncoming surge of foreign hot money? What kind of monetary policy changes in turn appear? This month's "China Economic Times Round Table" will focus on this topic in-depth analysis and discussion.
At present, awareness and understanding of hot money some changes need to happen. The first is the definition of hot money, from an illegal, simple adjustment of impression speculation came about, in fact, is itself an investment behavior of hot money, they come to China is the way the current policy to allow incoming. Followed by the Chinese Government's attitude, that is, without fear of hot money in China, the Chinese government or the RMB control, no hot money order out to have completed a conversion from RMB to U.S. dollars. Therefore, the impact of hot money, China's capital market is almost impossible to say at once threw 800 billion U.S. dollars, there is no such possibility. In this context, you must complete the process from the block to the sparse, that it is the source of trouble from the boot to absorb liquidity in China it up, let it dry for China to expand domestic demand, something that we call "the use of dry foam something, use something dry hot money, the use of liquidity dry something. "
Now the hot money that much effect. Now the flow of hot money to complete the Green tickets from ticket changes to red, red print tickets out of the central bank, while the green tickets is to earn export by domestic enterprises came. If the hot money into China's stock market to the housing market, they must complete the tickets from the green ticket to the red shift in the transition process, give us a great insight: We have come too much foreign exchange, in order to reduce liquidity, is to digest a huge source of foreign exchange reserves, the central bank's balance sheet to lose weight. To the end of September, the central bank assets and liabilities was 3.72 trillion U.S. dollars, more than the Fed nearly 1.5 trillion U.S. dollars. Therefore, we must now change the mode of growth, from the emphasis on exports to imports, the foreign currency paid out. Wide use of foreign exchange as soon as possible into a strict policy to allow all people to get tickets to the Red Bank Green ticket exchange, reverse against the central bank recycling burned red tickets, a green ticket so that our people use to go out or let our business building needs to buy back the domestic coal, oil, gold and even aircraft, agricultural products better and our food storage together.
See, now this round of inflation and asset bubbles but is not a commodity-based currency type, and must find a way out for these liquidity. It is recycled to the central idling, will increase the bank's costs; it into consumption, will increase inflation. So be sure to make it into the investment field. The absorption of liquidity we have said, the best way is to develop the stock market, absorbing them in, fundamentally resolve the so-called liquidity to our printed tickets too much, too much hot money caused the trouble. Here, the key is to guide, as long as the hot money legally, they should be welcomed, rather than simply to raise interest rates, return flow to the central bank, and then develop a currency tigers, so that not only make you hot money exchange spreads, eating your interest .
Currently re-acquisition of 600 billion U.S. dollars U.S. Treasury bonds as a symbol of the second round of "quantitative easing" policy has been launched. United States, Europe, Japan and other developed countries to create a common strategy used by the global printing loose monetary conditions, and more hot money flowing into China, exacerbated by China's imported inflation, the main channels: first, a "quantitative easing" national monetary policy inflation temporarily, but leakage through the liquidity of China exporting inflation. China's first recovery of the real economy, higher interest rates, appreciation of the renminbi and other factors, becoming the object of pursuit of international capital, leading to the rapid growth of China's foreign exchange reserves, foreign exchange increased, the central bank issuing the equivalent of base money, increase the probability of inflation. Second, the "quantitative easing" monetary policy led to lower real interest rates developed countries, spread to induce international capital into China, and raise inflation risks. Present in major developed countries are basically at the "zero interest rate" range of conditions, the equivalent of quantitative easing monetary policy further reduces the nominal interest rate. The response to inflation risks, the decision of the central bank from October 20 financial institutions from the one-year deposit and lending rates by 0.25 percentage points. Further interest rate increases for domestic and foreign interest rate to induce the influx of international capital to accelerate the domestic arbitrage, liquidity increases the risk of inflation increase. Third, the proliferation of global liquidity led to international commodity price increases, inflation and output to the world, resulting in imported inflation. Loose monetary policy resulting in the proliferation of money into commodity developed countries and financial markets, broad based commodities including precious metals, crude oil futures prices advance to $ 90 a barrel, iron ore, copper and other metals and bulk commodity prices are sharply rising and the global exporting inflation, China's huge demand for these commodities, there imported inflation.
The current hot money inflows may be mainly the expected appreciation of RMB, is expected to increase once the appreciation of the case, will accelerate the pace of hot money inflows, but they are expected to arise under China's trade surplus, China's trade surplus in recent months is indeed a high , thus resulting in higher expectations, but I think this is not a trend of things, probably in November, December's trade surplus will come down, down, hot money inflows will be reduced. And the People's Bank of China, the extent of the RMB exchange rate more freely wide fluctuations, so the possibility of sustained inflow of hot money will not be much. However, the issue of China to raise interest rates, and foreign countries have an interest rate spread, may lead to some pressure, but the whole is not a particularly serious problem.
Of course, hot money inflows will increase inflation in China is no doubt, but I think this year's foreign exchange reserves, the rate of increase will be significantly reduced. In fact, the hot money is mainly used to increase the amount of foreign exchange reserves minus the monthly trade surplus often, minus FDI, the scale is not too large, it more than 200 billion dollars a month, not particularly serious problem.
In order to stimulate their economies, the United States announced in early November in June 2011 before the purchase of 6000 billion worth of U.S. Treasury bonds, the so-called quantitative easing policy of the secondary (QE2). U.S. QE2 is not only higher than the market expected size (600 billion U.S. dollars instead of 500 billion U.S. dollars), and span is also longer than expected (8 months instead of 6 months), which is typical of the "beggar thy neighbor", "selfish" (of course very long hard to say that self-serving) policies, inevitably have a negative impact on China, the most important performance is the hot money inflows. Hot money inflows, on the one hand the problem of excess liquidity in China is more prominent, have to further tighten monetary policy (including increased open market operations, raising the deposit reserve ratio, the size of credit control, etc.), face the more difficult of the "dilemma" Select . On the other hand, QE2 will increase the threat of inflation, mainly through two channels: one is the hot money inflows increase the scale of the domestic money supply increases, prices will further increase the pressure; the other is the QE2 lead to depreciation of the dollar, crude oil, iron ore and grain and other international commodity prices, thereby increasing on the impact of imported inflation.
"Continuous Inflow of Hot Money Will Affect the Chinese Market", was submitted 01/26/2012 under category World Affair.
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