China's Forex Inflows Slow in November but Remain High

Beijing has expressed concern about the flood of overseas money into the world's second-largest economy which it fears is fueling inflation.

The amount of foreign currency flowing into China slowed in November but was still the second highest monthly total in 2010, the government said on Dec. 20.

Beijing has expressed concern about the flood of overseas money into the world's second-largest economy which it fears is fuelling inflation and helping to push property prices out of the reach of most ordinary Chinese.

The large flow of foreign currency -- partly driven by strong demand for Chinese exports and real estate investment -- also means officials have to work harder to prevent the yuan from strengthening against the dollar too quickly.

Beijing, worried that a stronger currency will hurt its exporters, keeps a tight grip on the value of the yuan despite pledging in June to let the unit trade more freely against the greenback.

The preliminary figures showed the People's Bank of China bought 319.64 billion yuan worth of foreign exchange in November, the second highest amount this year after it acquired 530.18 billion yuan in October.

While the data suggests the flood of capital into China slowed last month, it was still much higher than the 290 billion yuan purchased in September and the 243 billion yuan in August, the central bank figures show.

The banking system's "position for forex purchases" includes all forms of capital flowing into China, from both trade and investment, making it difficult to determine why the inflows decreased in November, Dow Jones Newswires said.

While the figure provides only a rough guide to changes in the amount of money sloshing around the domestic economy, it does highlight the challenge facing Beijing as it seeks to rein in inflation and property prices.

The country's consumer price index, a key measure of inflation, topped 5% in November for the first time in more than two years while property prices remained stubbornly high.

Inflation has a history of sparking social unrest in China and officials have tried to tackle the problem by ordering banks to hold more money in reserve and hiking interest rates for the first time in nearly three years.

Copyright Agence France-Presse, 2010

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