China Approves Sale of $10b State Bonds to Japan
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Japan has received approval from Beijing to purchase Chinese government bonds worth a total of $10.3 billion, as the two countries aim to strengthen financial ties. This is also the first time China has allowed a major advanced economy to purchase its sovereign debt.
With the announcement, analysts say it adds credibility to the yuan’s rise as an international currency.
[quote] In 2011, more than 9 percent of China’s total trade was settled in yuan, up from just 0.7 percent in 2010. [/quote]
Japan has received approval from Beijing to purchase Chinese government bonds worth a total of $10.3 billion, as the two countries aim to strengthen financial ties. This is also the first time China has allowed a major advanced economy to purchase its sovereign debt.
With the announcement, analysts say it adds credibility to the yuan’s rise as an international currency.
[quote] In 2011, more than 9 percent of China’s total trade was settled in yuan, up from just 0.7 percent in 2010. [/quote]
Japan’s finance minister Jun Azumi told reporters:
[quote] I think the amount is appropriate given that the goal of this step is to reinforce our bilateral economic relationship, such as by promoting the exchange of information between Japanese and Chinese authorities. [/quote]Azumi, however, said that the investment will only begin in a few months, as Japan tries to avoid any shocks to the financial and currency markets.
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China and Japan have the world’s largest foreign currency reserves, and the deal is an extension of the two countries’ pact to increase economic cooperation between the world’s second and third largest economies.
On Christmas day last year, the two countries signed a wide-ranging currency accord, aimed at boosting the international prominence of the yuan in trade, and also to promote the direct use of yen-yuan trade rather than converting their currencies to the dollar.
As the BBC reported, ‘China does not allow foreign investors to freely purchase government bonds’ and Beijing maintains ‘tight control over foreign investments in yuan-dominated assets.’
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Questioning the credibility of the yuan in becoming a major reserve currency, Michael Pettis of Peking University told the BBC:
[quote] It will only truly be an international currency if foreign central banks can freely buy and sell it according to their needs. So far what we have are inter-government agreements which are just cosmetic. [/quote]
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