China’s foreign exchange regulator has played down fears that an increase of US$453 billion in the country’s forex reserves last year was due to an influx of hot money, state-media reported. The State Administration of Foreign Exchange (SAFE) also denied "media reports" that hot money inflows could have amounted to nearly US$167 billion last year, arguing that the figure had been calculated by subtracting the nation’s trade surplus and foreign direct investment from the increase in forex reserves. This, SAFE argued, failed to take into account capital flows from services trade, foreign debt and individual and equity investment items, as well as the return on the forex reserves themselves and changes in foreign currency valuations. "(This method) is not scientific and its conclusions are misleading," SAFE said, adding that it has sufficient information to explain the US$167 billion gap of last year. Despite this, the regulator admitted the presence of foreign speculative funds in the country, and vowed to tighten up the channels through which capital enters China. "China still needs to maintain capital-account curbs," it said in a statement on its website.
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