Published by Jamie JemmesonInflows of speculative 'hot money' are returning to China, according to the latest foreign exchange purchasing data.Market News International reports that Chinese banks increased their foreign currency holdings in August despite a smaller trade surplus, suggesting a return to the speculative trading practices bemoaned by the People's Bank of China (PBOC) earlier this year.In forex trading circles, the term 'hot money' points to process whereby money flows rapidly from country to country as investors seek out the highest returns on short-term interest rates.It was the first time since April that forex purchases by Chinese institutions exceeded the combined monthly foreign direct investment and trade surplus figures, and suggests that offshore forex traders are once more betting on a rise in the yuan.Forex purchasing data showed that hot money had been leaving China in May, June and July and as the PBOC announced a more flexible exchange rate policy on June 19th, it nevertheless stressed that it would move to block any sharp spike in the yuan driven by forex trading inflows.For more information on international payments, visit our Smart FX site