Jan. 5 (Bloomberg) -- China may see “huge” speculative inflows as overseas investors step up bets on yuan gains, making it difficult to manage liquidity, said Zhang Xiaoqiang, deputy head of the nation’s top planning agency.

Loose monetary polices in developed countries, a weakening U.S. dollar and China’s economic recovery will put renewed pressure on the yuan to appreciate, Zhang, from the National Development and Reform Commission, said in a statement on its Web site today. The country is becoming more reliant on foreign economies, he said.

China’s foreign-exchange reserves climbed 17 percent in the first nine months of 2009 to $2.27 trillion, the world’s largest holdings, as the central bank bought dollars to prevent yuan gains. Rallies in Asian currencies last year put other nations in the region at a disadvantage in global trade because strength in their currencies pushes up prices of goods for export.

“There will be more calls for a stronger yuan from emerging-market countries when their currencies continue to gain against the dollar this year,” said Xing Ziqiang, a Beijing- based economist at China International Capital Corp. “There may be a 25 percent increase in the amount of hot money.”

Dollar Slump

China has effectively pegged the yuan at about 6.83 per dollar since July 2008 to help exporters weather a slump in demand triggered by the global financial crisis. Premier Wen Jiabao said on Dec. 27 that the nation will “absolutely not” yield to international calls for renewed appreciation.

The U.S. currency will slump 6 percent in the first quarter as investors buy emerging-market assets, according to SJS Markets Ltd. The Dollar Index, which tracks the greenback against those of six major trading partners, rallied 4 percent in December. The Indonesian rupiah and South Korea’s won have advanced more than 15 percent over the past year.

Twelve-month non-deliverable yuan forwards rose 0.07 percent to 6.6480 per dollar as of 4:31 p.m. in Hong Kong, indicating brokerages are betting on a 2.7 percent appreciation in the currency in a year. In the spot market, the yuan was unchanged at 6.8273, according to China Foreign Exchange Trade System.

Investment Bubbles

China’s policy makers are trying to ensure an economic rebound and at the same time prevent excessive liquidity in the financial system from creating bubbles in stocks and property. Liu Mingkang, the nation’s top banking regulator, wrote in an opinion piece in Bloomberg News yesterday that “structural bubbles threaten to emerge.”

Donald Tsang, Hong Kong’s chief executive, said Nov. 13 that he was “scared” that money flowing into Asia because of low interest rates in the U.S. could lead to another crisis in the region. The city’s yuan deposits expanded by 3 billion yuan ($438 million) in November, the most since April 2008, showing investors’ increasing demand for the Chinese currency.

The yuan may rise 3 percent to 5 percent against the dollar this year, CICC’s Xing said. The Chinese currency advanced 21 percent in the three years after a peg was scrapped in July 2005.

--Judy Chen, Alfred Cang. With assistance from Anil Varma in Mumbai and Zhe Huang in Beijing. Editors: Simon Harvey, Sandy Hendry

To contact Bloomberg News staff for this story: Judy Chen in Shanghai at +86-21-6104-7047 or Xchen45@bloomberg.net; Alfred Cang in Shanghai at +86-21-6104-7015 or acang@bloomberg.net.

Last Updated: January 5, 2010 03:33 EST