2010-06-11 13:09

"I suggest that investors should not particulate too much in gold speculation," Zhu said. "The current gold buy-back channels in China are not smooth, so gold speculators will be exposed to high risks."

Li Youhuan, deputy director of the Industrial Economy Institute under the Guangdong Academy of Social Sciences, said capital flows to wherever returns are highest and hot money is born from high profits. Because China will possibly increase interest rates and revalue the yuan, huge amounts of hot money have entered the country through various channels. Furthermore, after 30 years of industrial development, there has also been an immense amount of surplus capital in China, which may turn into hot money at any time because of rising inflation expectations.

"As can be seen from the current garlic and gold markets, and from the market of Pu'er tea years ago, it is extremely difficult to control hot money inflows. However, we can increase the cost of hot money flows to reduce its size and flow," Li said.

He suggested that the government should crack down hard on illegal private banks, thereby cutting off channels of illegal hot money inflows from abroad.

Li Jianjun, a professor at the School of Finance under the Central University of Finance and Economics, said the key to controlling hot money is to manage price expectations, but prices of agricultural products are closely related to natural conditions, and gold and the US dollar are somewhat lined in value. These have all made it difficult to control price rise expectations.

Li said according to the recently released "Opinions of the State Council on Encouraging and Guiding the Healthy Development of Private Investment," private capital is now allowed into certain monopolized industries and will most likely flow into the financial industry and the tertiary industry. This will change China's processing and secondary industry-based economic pattern, and hot money will no longer be a "troublemaker," but rather become an effective tool to promote economic development.