Despite the recent fluctuations in the exchange rate of the Renminbi (RMB), China's currency, international hedge funds are unable to flood the country and profit from the future appreciation of the RMB.

Mei Xinyu, a senior researcher with the Chinese Ministry of Commerce, made the remark in an interview with Xinhua.

Strict management of capital account inflows and outflows prevents hedge fund and other speculative money from invading China to bet on the RMB's value, he said.

Although overseas hedge fund managers wish to buy more RMB, they can't do it because the country does not provide corresponding financial derivatives, he said.

Policy adjustments also have a huge impact on the RMB's value, so hedge fund managers have to consider policy risks if they trade in the yuan, he said.

"If these hedge funds want to bet on an appreciating RMB, they will have to choose nearby markets in Singapore and the Republic of Korea," he said.

Speculation about the future value of China's currency, the yuan, has hotted up since February, an official research report said last month.

Hot money inflow reached 1.02 billion, 4.45 billion, 5.31 billion and 12.5 billion U.S. dollars in February, March, April and May, respectively, said the report from the international center of the National Bureau of Statistics.

There is no clear definition of hot money. The figures were calculated by deducting foreign direct investment and trade surplus from the increase in the country's foreign exchange reserves, a standard calculation method, the report said.

Since China's financial markets are not fully open, a lot of speculative money from Hong Kong and foreign countries has poured into the real estate sector instead of the currency market, apparently in the hope of profiting from rising prices and an anticipated rise in the yuan, which would push up the value of mainland assets in foreign currency terms.

This type of investment rose 27.9 percent in the first six months of the year, compared with the same period of 2005, the Ministry of Commerce said.

This prompted the government to release draft rules restricting residential property purchases by foreigners, though details have yet to be hammered out.

"Effective measures should be taken to gradually quash speculation about the appreciation of the RMB," the NBS report said.

China's central bank is trying to make its exchange rate mechanism more flexible and market-oriented.

The sharp ups and downs in the value of the yuan in recent days surprised many investors, who have discovered that the yuan can move in both directions.

Source: Xinhua