Concerns for hot money inflow dismissed

Foreign exchange supply and demand in China is "generally balanced" and expectations remain "basically stable" despite hot money inflow concerns, the industry regulator said Wednesday.

The foreign exchange watchdog made the comments after the spot price of the yuan against the U.S. dollar rose by the 1-percent daily limit for ten consecutive days from late October into November.

This reignited concerns over hot money inflows into the world's second-largest economy. Hot money, or speculative capital flows, can potentially lead to market instability.

"There is no strong evidence of hot money inflows in China despite a recent rally in the yuan, which has been driven by improved market sentiment," the State Administration of Foreign Exchange (SAFE) said in a statement.

The prospect for the country's economy and currency is one of optimism due to both domestic and external factors, leading to a stronger yuan, the statement said.

The spot price of the yuan against the U.S. dollar rose to 6.2262 on Nov. 13, marking a record high since China's foreign exchange reforms seven years ago.

Chinese clients exchanged 125 billion U.S. dollars in foreign currency for yuan through the country's banks in October. They bought 117.2 billion U.S. dollars in foreign currency from financial institutions last month, according to the SAFE data.

This resulted in a foreign exchange surplus of 7.8 billion U.S. dollars in October. This follows a surplus of 6.5 billion U.S. dollars in September, indicating that Chinese business and individuals are becoming more willing to hold onto the yuan, with expectations for a stronger currency.

The third round of quantitative easing by the United States has not yet caused obvious hot money inflows into China because of a series of factors. These include continuous declines of the yuan's forward exchange rates, the narrowing interest rate gap between China and other countries as well as the fragile economic recovery in the country, according to the statement.

The SAFE pledged to strengthen the monitoring and management of abnormal cross-border capital inflows and outflows and accelerate the development of the country's foreign exchange market, the statement added.