By George Chen
The opinions expressed are the author’s own.

“Hot money” is the hot discussion among Chinese officials, investors and the media these days. The “hotter” the fund flows are, the more risk there is to China’s financial system, many officials believe. Naturally, “hot money” has become a top enemy of the central bank, just like inflation.

Almost the same story took place about five years ago, just ahead of China’s landmark yuan revaluation in July 2005. At the time, we saw media reports about “hot money” every day, but they often disagreed about the amount of “hot money” that China had and could afford.

Some official media preferred to give a vague yuan figure in the tens of billions. I remember a central banker in Guangzhou once disclosed a more specific number and then received an immediate warning from his boss in Beijing. Hot money — how hot? That’s pretty much considered another state secret.

After China’s deputy central bank governor, Ma Delun, helped explain the “pool concept” offered by his boss, Zhou Xiaochuan, to fight an inflow of hot money, other officials joined the chorus. In an article published early this week, Deng Xianhong, deputy chief of the State Administration of Foreign Exchange, urged the government to watch the situation more closely.

China risks becoming a prime target for speculators as developed countries pump cash into the global economy, Deng told China Forex Magazine, an official industry monthly authorized and supervised by the State Administration of Foreign Exchange, Deng’s employer. “If we do not control the property bubble, let a stock bubble inflate and allow the yuan to rise freely, China will face the risk of large-scale cross-border capital flows,” he said.