BEIJING: China's foreign currency inflows increased by 79 percent in October over September to 519 billion yuan ($77.6 billion), according to figures released by the central bank Saturday. As China seeks to rein in spiraling inflation, the sum injected into the economy through foreign exchange was the second highest in the country's history, according to the Beijing News daily. The only higher figure was in April 2008, when foreign exchange inflows totaled 525 billion yuan, said the newspaper. October's jump resulted only partially from an expansion in the country's trade surplus to $27.2 billion, and in foreign direct investment to $7.7 billion during the month. An influx of speculative “hot money”, attracted by higher yields in China than in developed countries, accounted for some $42.8 billion of the rise. “China has entered a cycle of rising interest rates, increasing the pressure of capital flows entering the country,” Beijing News quoted Zhao Qingming, economist at China Construction Bank, as saying. The central bank last month raised interest rates for the first time in almost three years, with many analysts expecting more rises in the near future. In another sign of monetary tightening, reserve requirements for banks - the proportion of their deposits they must set aside with the central bank - were raised twice in November to 18 percent, having already risen three times in 2010. If capital continues to flow into China, another rise of half a percentage point will not be enough to curb the expansion in money supply, said Lu Zhengwe, economist at the Industrial Bank, also quoted in the Beijing News. An increase of one to 1.5 percentage points would be needed, he said. China's foreign exchange reserves - the world's largest - in late September totaled $2.64 trillion, compared with $2.45 billion in June. – Agence France
