China didn't witness large amounts of "hot money" flowing into the domestic market and the pressure of a speculative capital influx should not be exaggerated, said a senior official at the State Administration of Foreign Exchange (SAFE) in an article published on Monday.

"Most of the cross-border capital inflows to China have a genuine trade and investment background. We cannot rule out the fact that some overseas hot money has flowed in to make profits, but that's not the mainstream," said Liu Wei, head of the General Affairs Department of SAFE, in an interview with the Beijing-based Century Weekly magazine.

Hot money inflows into China often rely on illegal activities disguised as normal trade and investment to bypass regulation, Liu said.

"But the hot money is not without a trace and we can still find some clues," Liu said.

SAFE said that since February 2010, it has stepped up efforts to crack down on hot money inflows. As of the end of October 2010, 197 cases of foreign-exchange violations had been verified involving a total of $7.34 billion.

"Despite overseas expectation of yuan appreciation weakening, which would help to calm hot-money pressure, the government still needs to remain vigilant, monitor closely and respond to speculative-capital inflows actively," Liu said.

She added that to counter hot money, SAFE will further promote domestic capital-market liberalization, encourage competent enterprises to invest overseas, and allow more institutions to join the qualified domestic institutional investor program.

Liu Mingkang, China's top banking regulator and a member of the central bank's monetary policy committee, said in December that increasing speculative-capital inflows led by monetary-easing policies of major world economies will pose an unprecedented test for the country and other emerging nations, making their capital inflow and inflation control more difficult.

Despite China's huge foreign exchange reserves, analysts said the impact of the hot money on the economy is still limited.

Louis Kuijs, a senior economist at the World Bank's China office, said that capital inflows into China and their impact on the economy remain modest given the limited amount and the country's strict capital controls. Most of China's capital inflows are long-term foreign direct investment as investors are optimistic about the country's growth potential.

China's foreign exchange reserves probably rose 4 percent to $2.76 trillion in the fourth quarter of 2010, according to a report published by Bloomberg on Monday.

A lower-than-forecast December trade surplus, announced by the General Administration of Customs on Monday, may help efforts to rein in supplies of cash. The excess of $13.1 billion compares with the $20.8 billion median estimated December surplus in a Bloomberg News survey of 20 economists.