The Research On Hot Money Flowing Into China

Since 2005, the RMB exchange rate against the U.S. has appeared unilateral appreciation, after the outbreak of the financial crisis in the United States, U.S. interest rates remained so low that there was interest rates difference between China and USA. Under this background, lots of hot money is flowing into China, which increased the size of China foreign exchange reserve and pressure of RMB appreciation and also made it difficult to manage the foreign exchange reserve. On the other hand, the quantity of Domestic base money increases rapidly, a situation of excess liquidity come forth, prices of asset and capital markets rize fast and inflation pressures are increasing, which make the central bank's macro-control more difficult. Against to this important practical problem, this paper carried out systematic research on the problem of hot money into China with the availability of substantial truth.Fistly, paper analyses the causes of hot money inflow and pointed out that the causes including RMB appreciation, the difference between China and US, income of capital market and high interest of Non-governmental. After data tested, it turned out RMB apreciation is the most important one. The channels of hot money flowing into China including common account, capital account, underground banks and money exchange between foreign banks. Secondly, the paper estimated the scale of hot money through FDI and trade account based on the formulation (foreign exchange reserve augments - FDI - trade surplus), and gained the conclusion that between 2005 and 2008, the scale is 0.6 billion dollar.The hot money is also affacting macroecomonics nagetively. At the last part, some advice were brough out such as collecting Tobin tax, accelerating the appreciation rate of the renminbi, strengthening the verification system of foreign exchange received export network,improving the collection of exports and imports and so on.