The debt ratio of Japan should be a reminder to China of the potential risk of increasing its stake in Japan's national debt. Investing in US Treasuries is still a safe choice for China as it shifts its growth engine from exports to a more balanced national economic structure, says an article on nbd.com.cn. Excerpts:
The national debt of Japan is 229 percent of its GDP, almost four times the international red line of 60 percent. Japan is likely to step into the shoes of the European Union in terms of sovereign debt, for even though it's the world's second largest economy, it relies heavily on borrowing to run its economy.
The liquidity of the yen cannot be compared to that of dollar or the euro. It will be very difficult to bail it out if it falls into the debt trap, so Chinese funds should not be tied to Japan.
China has a $2 trillion in foreign exchange reserves and it is still trying with the idea of how best to use them, given the volatility of the global economy and trade.
US Treasuries are a safer investment choice with better prospect of returns in the short run. But what China needs in the long run is to modernize the structure of its national economy to insulate its economy against global financial crises.
(China Daily 07/12/2010 page9)