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China Faces Increased Speculative Capital Inflows: SAFE

China's capital inflows may increase further this year as global liquidity has improved due to policy easing by major economies, and domestic growth gathered momentum, the country's currency regulator said Friday.

The surge in money inflows, which started towards the final months of last year, partly reflects the recent measures unveiled by the Chinese government to quicken approvals on foreign investment.

The warning from the State Administration of Foreign Exchange (SAFE) came after Chinese banks bought foreign exchange valued $86.9 billion from clients during the three months ended December.

The anticipated influx of "hot money" reflects increasing stability in the domestic economy and an improvement in global liquidity, helped by the monetary easing policy adopted by major economies, the regulator noted.

There are clear signs of stabilization in the domestic economy, the regulator said. Further, concerns about a hard landing in China's economy have gradually eased and the market sentiment has turned optimistic from overly pessimistic, it added.

The continuing impact of the global financial crisis, low interest rates in the developed economies that support liquidity and improved market risk appetite, may stimulate international arbitrage capital flows into the country, SAFE said.

The regulator also called for steps to tackle the impacts of unsustainable capital inflows on the domestic economy, after China's money-market rate dropped this week on anticipated growth in money inflows.

The Chinese economy expanded at a faster rate of 7.9 percent in the fourth quarter than 7.4 percent in the preceding three months, ending seven consecutive quarters of slowdown.

by RTT Staff Writer

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