HOT money flowing into China surged to US$80 billion in the first quarter on expectations the yuan would rise further and Chinese interest rates would go up, a senior economist said yesterday.

That meant the monthly flow of speculative funds this year was nearly triple the average throughout 2007, Zhu Baoliang told reporters.

Zhu is an economist with the State Information Center, a think-tank under China’s top economic planning agency.

“This is mainly because both the anticipation on the appreciation (of the Chinese currency) and the spread between (domestic and foreign) interest rates are expanding,” he said.

Zhu said earlier that the amount of hot money coming into the country stood at US$120 billion last year, according to reports in the State-run press yesterday.

He warned that the inflows in the first quarter had increased market liquidity, which in turn could put further upward pressure on China’s inflation.

Inflation hit a near 12-year high of 8.7 percent in February.

He said China must be cautious in allowing a faster appreciation of the yuan, so as to dampen speculation, according to the reports.

“Allowing the yuan to appreciate rapidly in a short period of time and then holding it stable would be very useful to restrain hot money,” he said.

The yuan has increased by about 18 percent to the dollar since its peg to the greenback was loosened in July 2005. Its pace of appreciation picked up in the first four months of the year.

Worried about inflation, China has raised interest rates six times since early 2007, at the same time as the U.S. Federal Reserve lowered them, causing the spread to widen.

(SD-Agencies)