Hot money fears sweep Asia

Hong Kong: China on Friday led an Asian backlash against measures by the United States to kickstart economy recovery, which have stoked concerns that a flood of loose money could destabilise regional economies.

The Federal Reserve said on Wednesday it would pump $600 billion (Dh2.2 trillion) into the economy through debt purchases — effectively printing money — to boost employment and growth.

But Asian nations fear the effects of extra cash pumping through the financial system — as traders seek a better return on their dollar than they would get in the West.

Stock markets, which made big gains in recent weeks as traders anticipated the stimulus, surged on Thursday and yesterday on the news. But the plan also prompted warnings of a wave of protectionism and capital control measures by Asian nations to stave off so-called hot money, potentially inflaming tensions ahead of this week's Group of 20 summit in South Korea.

Xia Bin, a member of the Chinese central bank's monetary policy committee, branded the stimulus plan "abusive" and warned it could spark a new global downturn. "If there is no restraint in issuing major global currencies such as the US dollar, the occurrence of another crisis is inevitable," said Xia, quoted by the Beijing News. Xia called on developing countries to impose capital control measures to "prevent hot money inflows from impacting their economy".

The Bank of Korea warned that inflows of foreign cash had gathered pace in recent months but could abruptly change direction.

"It is advised, therefore, that measures should be worked out to help curb excessive capital inflows and to prevent their sudden reversal," it said in a Financial Stability Report prepared before Wednesday's US Federal Reserve announcement.

A senior finance ministry official said separately Seoul would "actively" seek further ways to curb excessive inflows.

Japan on guard

Finance Minister Yoon Jeung-Hyun said the government was studying various measures, including a tax on foreign investment in treasury bonds.

Japanese Finance Minister Yoshihiko Noda said yesterday he would keep a "very close eye" on the US moves amid concerns the yen, which is already at 15-year highs against the dollar, could surge further.

Hong Kong Financial Secretary John Tsang said the extra money flows would "bring more pressure on our stock and property market" and added: "We will look at the situation closely in the short term."