From Chinese Press

Buying of bonds not political

(China Daily)
Updated: 2010-12-07 09:04

China is said to be holding Republic of Korea (ROK) treasury bonds worth 5 trillion won ($4.34 billion), sparking fears among authorities in the ROK and Japan both. But Seoul and Tokyo should realize that Beijing has no intention of threatening their financial security, says an article on www.gmw.com. Excerpts:

Economic ties between China and the ROK have strengthened. About 16.7 percent of ROK's exports are meant for China, which is more than its exports to any other country, including the US and Japan.

But Seoul is getting increasingly worried over Beijing buying more ROK treasury bonds because it fears that its financial security would weaken in case the relationship between Beijing and Seoul suffer a setback.

But $4.34 billion is a small sum compared to China's huge foreign exchange reserves in dollars.

Japan, too, has been alarmed by China's large holding of its treasury bonds and has expressed concerns over financial security.

The fact is, while buying more ROK treasury bonds China has been reducing its reserves of Japanese bonds, because of which Tokyo has been blaming Beijing of releasing hot money into Japan.

Tokyo has to understand that Japanese bonds are not a safe long-term investment. The rate of return on Japanese bonds is not that attractive and the share of Japan's debt in its GDP is large enough to cause concerns.

China is reducing its share of Japanese bonds out of concern for long-term benefits. By holding ROK and Japanese bonds, China can diversify its foreign exchange reserves and reduce the risk of loss caused by a fall in the value of the US dollar.