(Xinhua)
Updated: 2008-04-14 19:48

BEIJING - Speculative fund inflows into China were accelerating as investors bet on a stronger yuan and rising domestic interest rates, and these flows were putting pressure on the money supply and prices, an analyst for a state think tank warned.

The first-quarter speculative inflow exceeded US$ 80 billion, compared with US$ 120 billion for all of 2007, Zhu Baoliang, the chief economic analyst of the prediction department of the State Information Center (SIC), told an industry seminar on Sunday.

Monthly inflows were running at triple the 2007 levels, he said, and this trend was exerting pressure on the central bank to increase money supply, which could mean further inflation.

People's Bank of China (PBOC, the central bank) governor Zhou Xiaochuan said in Washington this past Saturday that emerging economies needed to closely monitor trade and capital inflows to enhance their ability to buffer external pressures and ensure healthy economic development.

China's foreign reserves topped US$ 1.68 trillion at the end of March, up 39.9 percent from a year earlier, the PBOC said last Friday.

Zhu said earlier this month that massive speculative inflows had driven foreign reserves to a new high. The PBOC said reserves grew by almost US$ 154 billion in the first quarter and US$ 35 billion in March alone.

First-quarter foreign direct investment, meanwhile, jumped 61.3 percent year-on-year to US$ 27.4 billion. In January alone, FDI inflows were up 109.78 percent.

Such a one-month surge was abnormal, given that FDI should represent a search for stable, long-term returns, said Ma Yu, a researcher with the foreign investment research institute of the Ministry of Commerce. He said these inflows were probably going into China's booming property market and perhaps the stock market.

Rapid yuan appreciation might accelerate 'hot money' inflows, said Zhu, while slow responses might fail to cap rising inflation.

He said that it was not pragmatic to maintain a continued strengthening of the currency to meet world expectations and suggested that the exchange rate might stabilize for some time.

The yuan breached the 7-per-US dollar mark last Thursday for the first time since China scrapped its peg from the dollar in 2005. The yuan has gained 4.47 percent against the US dollar so far this year based on Thursday's trading.

Zhu advised the PBOC to hold money supply growth to 16 percent.

He also predicted a 6 percent rise in consumer prices and a 25 percent increase in fixed-asset investment in 2008. Gross domestic product would exceed 10 percent.