China should raise costs to deter speculative foreign money - People's Daily

SHANGHAI (Reuters) - China should raise the costs of short-term, cross-border money flows to buffer its financial markets from speculative capital, said Zhu Min, head of the National Institute of Financial Research at Tsinghua University, as cited by the People’s Daily.

Zhu, a former deputy managing director of the International Monetary Fund, also said China should step up monitoring cross-border trading activities to maintain market stability, China’s official daily newspaper reported on Tuesday.

Against a backdrop of great economic and financial uncertainty, and with increasing links between global markets, “the volume and speed of cross-border capital flows are unprecedented,” Zhu told the newspaper in an interview.

“This will not only result in sustained fluctuations in major world currencies, but will also lead to higher volatility in global financial markets. Therefore, we must be prepared for potential risks.”

Zhu’s cautionary comments come amid signs that foreign money has been flowing into Chinese markets at an accelerated pace, lured by the country’s early economic recovery from the coronavirus crisis and its attractive bond yields.

The yuan has been strengthening against the U.S. dollar over the past several months, a trend Zhu said will likely continue, citing the Federal Reserve’s policy of keeping U.S. interest rates at near-zero levels.

Zhu said many countries crossed a “red line”, implementing unprecedented fiscal and monetary policies to avoid financial and economic collapses during the coronavirus pandemic, increasing uncertainty.

Zhu’s view echoed that of Sheng Songcheng, a former Chinese central bank official who told a forum last week that China should closely monitor large short-term capital inflows and the risk of a rapid yuan appreciation.

Reporting by Samuel Shen and Andrew Galbraith; Editing by Tom Hogue