UPDATE 1-China faces hot money because of U.S. -c.bank adviser

(adds quotes, background)

By Kevin Yao

SHANGHAI, Oct 18 (BestGrowthStock) – China needs to bolster its
capital controls to curb hot-money inflows because loose U.S.
policies are pushing cash into Asia, an academic adviser to the
Chinese central bank told Reuters on Monday.

Xia Bin, who is also a researcher in a think tank under the
cabinet, said the dollar faced long-term downward pressure and
that China was committed to eventually making the yuan a
free-floating currency.

“The United States is implementing loose monetary policy,
which is irresponsible and generating capital flows. That is why
we are talking about capital controls in Asia,” Xia said on the
sidelines of a meeting of central bankers in Shanghai.

China already has one of Asia’s most tightly controlled
capital accounts, but the country’s foreign exchange regulator
has vowed to do even more to block hot money after signs in
recent weeks of a rise in speculative inflows.

Flows to China are in part chasing yuan appreciation, and
Xia said that Beijing would make the currency more flexible but
only over time.

“A free-floating exchange rate is the long-term objective,
but for now we should maintain a managed float and increase the
flexibility and the trading band,” he said.

China freed the yuan from a 23-month peg to the dollar in
June and has let it gain about 2.7 percent against the dollar
since then, with most of its rise coming after August.

U.S. and European officials have criticised the pace of
appreciation as too slow, but Beijing won something of a
reprieve on Friday when the U.S. Treasury Department opted to
delay a decision about whether to label China a currency
manipulator.

“This is because (U.S. President Barack) Obama’s
administration clearly notes that yuan appreciation will not
resolve their problems,” Xia said.

“In the long term, if the United States cannot find ways to
boost its potential growth, the dollar will face big pressure,”
he added.
(Editing by Ken Wills/Ruth PItchford)

UPDATE 1-China faces hot money because of U.S. -c.bank adviser