China Central Banker Warns Potential Risk from USD Carry Trade

Massive capital flow caused by USD carry trade may raise poetical market risk for 2010, a senior <?xml:namespace prefix = st1 ns = "urn:schemas-microsoft-com:office:smarttags" />China central bank official said at the annual World Economic Forum.<?xml:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" />

“Last year foreign capital pulled out of the emerging markets during the crisis but later they went back in again. This has caused huge volatility in the market," Zhu said and estimated the current capital flow of USD carry trade may reach USD1 trillion to USD1.5 trillion.

Zhu Reiterated at the forum that maintain a stable yuan exchange rate is “not only good for China but also good for the world.”

He also said the current rebound in the world economy was supported by massive government stimuli.

 “We don't feel we have a very strong engine behind future growth."

A more structured growth model, which strikes a balance between government spending and private investment and consumption, needs to be in place for more sustainable long-term growth, Zhu added.