About | HeinOnline Law Journal Library | HeinOnline Law Journal Library | HeinOnline
LOG IN
LOG IN

1 1 (July 21, 2008)

handle is hein.crs/crsajwp0001 and id is 1 raw text is: Order Code RS22921 July 21, 2008 China's Hot Money Problems Michael F. Martin and Wayne M. Morrison Foreign Affairs, Defense, and Trade Division Summary China has experienced a sharp rise in the inflow of so-called hot money, foreign capital entering the country supposedly seeking short-term profits, especially in 2008. Chinese estimates of the amount of hot money in China vary from $500 billion to $1.75 trillion. The influx of hot money is contributing to China's already existing problems with inflation. Efforts to reduce the inflationary effects of hot money may accelerate the inflow, while actions to reduce the inflow of hot money may threaten China's economic growth, as well as have negative consequences for the U.S. and global economy. This report will be updated as circumstances warrant. Economic conditions in China are of considerable concern to U.S. policymakers, given the potential impact of China's economy on the global and U.S. economy. The recent large inflow of financial capital into China, commonly referred to as hot money, has led some economists to warn that such flows may have a destabilizing effect on China's economy. In an op-ed column in the Financial Times, two China experts wrote of hot money's ensuing money creation is fueling rising inflation, systemic overinvestment, and an overextended banking system.' There are also indications that hot money flows have played a role in the recent rise and fall of China's stock and real estate markets. Other economists have expressed concerns that efforts by the Chinese government to control hot money inflows could have significant negative consequences for the U.S. and global economy in the form of slower growth, greater inflation, or both. Defining Hot Money There is no formal definition of hot money, but the term is most commonly used in financial markets to refer to the flow of funds (or capital) from one country to another in order to earn a short-term profit on interest rate differences and/or anticipated exchange rate shifts. These speculative capital flows are called hot money because they can move very quickly in and out of markets, potentially leading to market instability. Many economists maintain that the rapid outflow of hot money first from Thailand and then 1 Michael Pettis and Logan Wright, Hot Money Poses Risks to China's Stability, Financial Times, July 13, 2008.

What Is HeinOnline?

HeinOnline is a subscription-based resource containing thousands of academic and legal journals from inception; complete coverage of government documents such as U.S. Statutes at Large, U.S. Code, Federal Register, Code of Federal Regulations, U.S. Reports, and much more. Documents are image-based, fully searchable PDFs with the authority of print combined with the accessibility of a user-friendly and powerful database. For more information, request a quote or trial for your organization below.



Short-term subscription options include 24 hours, 48 hours, or 1 week to HeinOnline.

Purchase Access

Already a HeinOnline Subscriber?

Log In

profiles profiles most