China still likely to attract hot money -officials

China's stock market may have come off the boil but hot money is still likely to be attracted by the country's appreciating currency and comparatively high interest rates, senior officials said.

Last year China abandoned its strategy of keeping yuan interest rates below those of the dollar in an attempt to cool down stock and property markets that were sucking in money.

But the weak outlook for other markets because of the U.S. subprime crisis, combined with aggressive U.S. rate cuts, have made Chinese markets attractive again.

"Though China's stock market also suffered some losses due to the global turbulence, I think people in the market, by making comparisons, will prefer to put their money in places where the impact is relatively small," said Sun Gongsheng, head of the Nanjing branches of the People's Bank of China and the State Administration of Foreign Exchange (SAFE).

China's robust economic outlook also makes it attractive to international speculators, he told reporters on the sidelines of China's National People's Congress.

The central bank raised benchmark interest rates six times last year, which, together with other cooling policies, has brought the main stock index <.SSEC> down 30 percent from its Oct. 16 peak of 6,124.

China's foreign exchange reserves jumped by a record $61.6 billion in January to reach $1.59 trillion, renewing the debate on whether Beijing is attracting new flows of speculative money. The increase was twice as great as the combined inflows from the trade surplus and foreign direct investment in the month.

There is now about $500 billion of hot money in China, former statistics chief Li Deshui has estimated, citing unidentified research, according to state media on Saturday.

"Many new changes have happened recently on the global market. And Chinese stocks and property are still one of the few harbours for global capital," Li said.

"We still haven't dampened over-expectations on the yuan's rise and have not effectively controlled large amounts of illegal hot money inflows," Li told a meeting of the country's top political consultants.

He called for the government to redouble its efforts to control short-term capital flows.

"Otherwise, our country's international payments imbalance and excess liquidity will get worse, which will add more uncertainty to growth, push the economy to boil over and build up more inflationary pressures," Li said.