The mainland's foreign exchange reserves grew at their slowest in more than two years last month, smothering widespread fears that record inflows of hot money betting on the appreciation of the yuan are feeding inflation.
The increase of just US$11.9 billion in June, the smallest monthly accumulation of foreign capital since February 2006, appeared to fly in the face of a government consensus that speculative inflows remain too high and need to be tightly controlled.
But some analysts said hot money continued to flow into the country. It was simply being masked by a government directive that now required banks to set aside higher reserves in US dollars, they said.
The mainland's huge pot of foreign cash rose by US$126.6 billion from the end of March to US$1.81 trillion at the end of last month, up 35.7 per cent from June last year. That followed a gain of US$153.9 billion in the first quarter of this year, the biggest on record.
But last month's foreign exchange reserve increase was far less than the combined total of the trade surplus and foreign direct investment, which together made up about US$31 billion of foreign cash inflows. This raised initial speculation that there was a net capital outflow last month.
By comparison, April and May saw huge capital inflows amounting to US$74.5 billion and US$40.3 billion respectively, significantly higher than official trade and investment inflows, heightening concern about the impact of currency speculation on the economy.
Beijing launched a crackdown on capital inflows this month on fears foreign capital was stoking inflation by pumping up money supply and preventing the central bank from raising interest rates.