[By Liu Rui/Global Times] |
This year, the Chinese economy has been one of the biggest drivers of the global economic recovery.
What's more, with solid long-term prospects, it has become a popular investment destination for both domestic and international investors.
Foreign direct investments (FDI) can have huge benefits for an economy, as demonstrated by China's development over the last 30 years, which was kick-started by overseas capital.
However, FDI can also create additional pressures and risks in the economic system, which, if not correctly managed, causes problems down the line.
One textbook example of this is the so-called hot money. These are short-term, speculative capital inflows with which investors seek to take advantage of fast-moving trends and turn a quick profit.
However, hot money can cause inflation, and has the ability to undermine long-term growth and create unnecessary volatility in the markets.
Worryingly, there are signs that China is currently experiencing a hot money deluge, thereby giving economic planners with a severe headache.
In November, China's capital inflows reached their second highest monthly total ever, touching $77 billion. Furthermore, figures for new loans, although down from October, were still alarmingly high at $75 billion. The number of property transactions involving foreign capital also increased nearly three-fold month on month.
On the back of this, leading economists have warned of the potentially damaging long-term effects on national development. Hot money may be stoking inflation and boosting equity and property bubbles.
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