The Chinese Academy of Social Sciences (CASS) released a report on Wednesday saying that international capital continued to flow out of the country in December 2008, despite the US$61.3 billion increase in foreign exchange reserves, most of which was generated by the fluctuation of the international exchange rate, the National Business Daily reported.

Zhang Ming, secretary-general of the International Finance Research Center of CASS, pointed out that US Dollar holdings constitute 70 percent of China's foreign exchange reserves while Euro capital amounts to 20 percent. The appreciation of the Euro against the US Dollar in December 2008 brought China a significant increase of US$44 billion in foreign exchange reserves.

The outflow of hot money has attracted close attention from analysts since September, but the increase in China's foreign exchange reserves has served to obscure this trend. The fact is that over US$25 billion of hot money withdrew in December, more than the drop in October.

Tan Yaling, chief exchange rate analyst of the Bank of China, told the National Business Daily that the US government had successfully maintained a high exchange rate in spite of asset depreciation, and its capital inflow has been strong since September last year, which means hot money has been withdrawing from China. Because capital flow has a degree of inertia, this outflow trend still prevailed at the end of 2008.

For more details, please read the full story in Chinese. (http://www.nbd.com.cn/_NewShow.aspx?D_ID=142702)

(China.org.cn by Fan Junmei January 15, 2009)