CHINA'S foreign exchange regulator, the State Administration of Foreign Exchange, yesterday said it will continue to stop inflows of speculative money, or "hot money," into the country and crack down on illegal foreign exchange activities.

The stance was stressed again in a report released yesterday by the SAFE, which said "hot money" inflows into China are a "long-term and complicated" issue.

The call for a crackdown comes after the regulator said in July that it had investigated 190 cases of hot money inflows worth US$7.35 billion as part of the campaign launched in February in 13 provinces and municipalities.

The report said "hot money" enters China because speculators are betting the yuan will appreciate.

The regulator also said some local governments, unidentified in the report, may have loosened controls to attract foreign investment.

The central parity rate of the yuan yesterday dropped 43 basis points to 6.6775 per US dollar, after hitting a new high of 6.6732 per US dollar on Monday.

The yuan has risen in value against the US dollar and has increased in volatility since the People's Bank of China, the central bank, announced on June 19 that it would reform the yuan exchange rate regime and increase exchange rate flexibility.

But yesterday's SAFE report noted that the reform of the exchange rate regime is not equivalent to an appreciation of the yuan. It also advised market players to be aware of foreign exchange risks.