1970-01-01 08:33:28
China cannot rule out the possibility of large sums of hot money, or short-term speculative capital, flooding out of the country after the Olympics Games as the world's fourth-largest economy is slowing the pace of its economic growth, experts said.
International speculators might withdraw their huge profits gained from China's economic boom in the past several years at some point in the post-Olympics era as the Olympics fades out as an economic booster, they pointed out.
"It's possible that a large amount of hot money will flow out of China after the Olympics as the country's economic situation changes," said Li Youhuan, vice-president of the Guangdong Academy of Social Sciences' Industry and Economic Institute.
China, one of the fastest-developing economies in the world, has witnessed double-digit annual growth since 2003. But the latest statistics show the Chinese economy has slowed down for a fourth straight quarter, rising only 10.1 percent in the second quarter of this year, after growing 10.6 percent in the first quarter.
China's investment in the Olympics, between 2001 and 2008, is estimated at 520 billion yuan (US$76.11 billion), said Huang Wei, an economic adviser to the Beijing Municipal Development and Reform Commission, the Shanghai-based Oriental Morning Post reported. That means an investment of around 200 million yuan per day from July 13, 2001, when Beijing won the bid to host the 2008 Olympics Games, to August 8, 2008, when the Olympics begins.
Beijing, the Chinese capital and Olympic host city, invested a total of about 295 billion yuan in the Olympics Games between 2001 and 2007, said Liu Zhi, deputy secretary-general of the Beijing Municipal Government. The figure includes investment in the city's infrastructure for transportation, environmental protection and energy, according to Liu.
The robust investment has given a strong boost to economic development. China's fast economic growth in the previous years is closely related to the country's preparations for the 2008 Beijing Olympics Games, the 21st Century Business Herald quoted Chen Jian, an economist from the Beijing Institute of Socialism, as saying.
Olympic host city Beijing and co-host city Qingdao achieved an annual economic growth of 12 and 15 percent from 2003 to 2007, respectively, Chen said.
Later this year, problems including more failures of export-oriented businesses, less government investments into infrastructure after the Olympic Games and declining domestic consumption, could short circuit China's economic engine, analysts said.
According to an estimate by 17 Chinese and foreign institutes including HSBC and the Chinese Academy of Social Sciences (CASS), one of China's major government think tanks, the country's gross domestic product will slow to 10 percent in the third quarter.
At a CPC Political Bureau meeting on July 25, the country's top leaders have shifted one of the country's top priorities for macro-economic controls in the second half of 2008 to maintain a steady and fast economic development from preventing the economy from overheating.
The previous policies were set late last year, when the Chinese economy steamed ahead with an 11.9 percent annual growth rate.
However, there are still challenges to maintain a steady and comparatively fast economic development in the second half, according to the meeting.
Li, who has been tracking the movement of hot money in his study, said his investigation of hot money also supported his argument as many of hot money holders are not upbeat about the post-Olympics economic outlook.
Li Yang, dean of the Institute of Finance under the CASS, estimated that between US$280 billion and US$520 billion of funds could exit China over a short period of time, according to the People's Daily. That compares to the country's US$1.81 trillion of foreign exchange reserves, the world's largest, according to statistics from the Peoples Bank of China, the central bank.
Analysts noted that speculative funds, which have greatly profited from China's robust economic growth and once-sizzling property market in the past several years, might withdraw from China as the Chinese currency, the renminbi, reaches the peak of the current cycle of appreciation.
The renminbi has gained 7 percent against the dollar this year and 21 percent since a fixed exchange rate was discontinued in July 2005, making it the best performer among Asian currencies.
International speculative funds have rushed to China to bet on a strong yuan, taking advantages of the differences between China's interest rates and the US levels.
Li Daokui, dean of the Finance Department of the prestigious Tsinghua University, echoed Li Youhuan's view. He said: "China should remain wary of hot money inflows turning into outflows, although the continued subprime credit crunch and the new turmoil in the financial markets in the US reduce the risks of hot money flowing out of China."
He noted short-term speculative capital outflows are more risky than inflows, as the latter only pushes up product and asset prices and stokes inflation, while sudden outflows of a large amount of hot money at the same time will pose a threat to the financial markets and the national economy.
Therefore, he suggested the government tighten control of hot money outflows to effectively curb hot money speculation as speculative capital will hesitate to enter China if it has difficulty to exit the country.
In an effort to tighten scrutiny over hot money, the government announced new rules last month to make it mandatory for companies to provide evidence to the State Administration of Foreign Exchange for verification from July 14.
Exporters are required to park their export receipts in temporary verification accounts till they are cleared as genuine trade revenue. The Ministry of Commerce and the General Administration of Customs will work with the foreign exchange regulator in implementing the new rules through a nationwide computerized network.
In its latest move to check hot money flows, the government issued revised rules on the management of foreign exchange on August 6, 2008, which mete out heavy penalties for improper currency transfer and conversion.
According to the new regulations, unauthorized inward or outward transfers of foreign exchange will face penalties of up to 30 percent of the capital. The rules took effect immediately.
Source:chinadaily.com.cn