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China sees 3.1 bln USD "hot money" outflow in 2011

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BEIJING, Feb. 23 (Xinhua) -- China recorded 3.1 billion U.S. dollars of "hot money" outflow last year, the State Administration of Foreign Exchange (SAFE) said on Thursday.

The outflow of speculative funds, or "hot money," from China marked an about-face of international capital, compared with a hot money inflow totaling 35.5 billion U.S. dollars in 2010, the SAFE said in its annual cross-border capital flows report.

According to the report, China faced massive cross-border capital inflows in the first half of 2011, driven by expectations of a stronger yuan and interest rate differences between China and other developed economies.

But the inflow trend was interrupted in the second half of last year, particularly since the end of September 2011 amid the liquidity crunch in overseas markets and reversed expectations towards the yuan in offshore markets.

The SAFE said fundamental factors will continue to support a surplus of China's international balance of payment, but warned that the country could see fewer cross-border capital inflows and greater volatility in the coming years due to an "unprecedentedly complicated and grim" international financial environment.

Even though the yuan has become more internationalized over the past years, the Chinese currency will remain a risky asset instead of a haven currency, the SAFE said, adding foreign exchange regulatory departments should introduce more tools in the market to hedge against risks to prepare for more flexible exchange rates of the yuan.

The slowdown of cross-border capital inflows, or even temporary outflows, indicated China's efforts to reduce its trade surplus to make its current account more balanced had paid off last year, said the foreign exchange regulator.

"The changes have created favorable conditions for China to improve its macro control policies and contribute to the rebalance of the global economy," it added.

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