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'Hot money' becomes scapegoat for price gap
(China Daily)
Updated: 2004-12-18 10:28
After the Southeast Asian financial crisis of 1997, people in China became
more aware of speculative funds, or hot money, that were flowing rapidly across
borders to seek profit at the cost of the recipient country's financial
stability.
Ironically, such speculation has become a mantra favoured by some Chinese.
They have found it an ideal replacement for the real causes of problems in some
poorly-regulated domestic markets.
The Chinese art market is the latest one to have joined the domestic chorus
crying wolf about hot money.
It has been reported that some so-called experts have warned that hot money
is sliding into the domestic art market. The evidence they have is that prices
of art work that went under the hammer were headed for the stars this autumn.
Given that the country's foreign exchange watchdog has admitted the existence
of speculative international funds in this country, it is reasonable to guess
that such hot money has, at least partially, flowed into some domestic markets.
These funds can reap profits from their domestic investment while waiting for
the windfall of a potential revaluation of the Chinese currency. Consequently,
increased demand inflated auction prices in the Chinese art market.
At first glance, the reasoning seems perfect.
It is out of the same logic that some people at some time earlier have
defended rocketing prices in Shanghai's real estate market. They deny there is
any bubble in the local market by attributing soaring house prices to the surge
of demand triggered by hot money.
In another creative use of the same excuse, some people think speculative
funds are to blame for the bearish domestic stock market.
All are possibilities that cannot be ruled out. For regulators, it is
dangerous to turn a blind eye to underlying problems in home markets.
While a lack of investment channels for individuals may explain most of the
recent boom in the Chinese art market, the fact that some people are
deliberately driving up prices for profits has exposed loopholes that related
regulators should be quick to plug.
The widening gap between house prices and the public's average purchasing
power is obvious to everyone.
Shareholders' lack of confidence in not only listed companies but also the
regulatory body itself is a question that can no longer be ignored.
Making hot money a scapegoat might be an easy answer to all these domestic
problems.
Profit is quick to make and quick to lose - unlike real
problems.
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