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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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