Hot money will keep flowing into China due to the country's rosy economic outlook and its appreciating currency, and not just because of its stock market, said Wu Xiaoling, formerly deputy governor of the People's Bank of China.
Though China's stock market became lusterless due to the global turbulence caused by the US subprime crisis, the country's comparatively rapid economic growth makes it still attractive to international speculators, the China Securities Journal reported on Monday, citing Wu on the sidelines of China's National People's Congress.
Monetary measures adopted by the central bank had proven to be "effective" in bringing the main stock index down and slowing down the inflation growth, according to Wu. The central bank had taken a series of measures such as raising the reserve requirement ratio 11 times and the benchmark interest rates six times since last year to absorb excess liquidity.
Quickening the pace of the yuan's appreciation may help curb inflation as prices of exported goods may turn out to be comparatively low, "but letting the yuan rise is not for avoiding inflation", she said.
Wu went on to say that there is no need to worry so much about the impacts on China's exportation of the yuan's appreciation and the US subprime crisis..
"It is inevitable that some enterprises will be forced out of the market when the yuan rises", she said, adding that "Currency appreciation, rising labor cost and possible energy pricing mechanism reform will urge enterprises to upgrade their technology and improve their competitiveness."
"We do not need to worry whether appreciation of the Chinese currency will lead to enterprise bankruptcy. What we need to consider is if we have an improved social security system to facilitate the migration of labor force that properly helps employees of a bankrupt enterprise to settle down."
(Chinadaily.com.cn March 10, 2008)
