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Central bank calls for supervision of speculative capital

(Xinhua)
Updated: 2007-06-22 12:58

China's central bank vice governor Wu Xiaoling said on Thursday that every country should monitor transnational flows of short-term speculative capital in order to prevent financial crisis.

Wu was addressing an ongoing international symposium in Beijing to mark the tenth anniversary of the 1997 Asian financial crisis.

Wu warned other countries to beware of "excessive pursuit of domestic assets by foreign capital", saying asset price hikes caused by huge foreign capital inflows were unsustainable as price drops usually occurred with capital fleeing a country and depreciation of the domestic currency.

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"All countries should adopt an exchange rate mechanism in line with their own situations as a rigid, inflexible mechanism is vulnerable to international hot money," Wu said.

"It is significant to look back on the 1997 Asian financial crisis, as we are addressing an unbalanced global economy, excessive liquidity and fickle financial markets," said Wu.

"A country's financial sector should open in a way commensurate with its domestic financial system," said Wu. "Opening without due management will pose a threat to financial stability."

Wu also called for international cooperation in preventing financial crisis and reducing losses in case of a crisis.

China had taken precautions against financial crisis since 1997, including setting up a prudent financial supervision system, developing its financial market and reforming the foreign exchange rate system, said Wu.