TOKYO - China's holdings of marketable securities surged fourfold to 13.84
trillion yen (about US$173 billion) at the end of 2010. The figures are based
on Japan's international balance of payments.
Equities holdings increased to about 3.42 trillion yen from 10.1 billion yen
within a span of one year during 2010. During the same period, holdings of
Japanese government bonds (JGB) surged threefold, to about 10.50 trillion yen
from 3.42 trillion yen. The total increase of about 10.41 trillion yen was so
great that it accounted for about 60% of Japan's surplus in its current balance
of payments.
The investments also helped to drive up the value of the Japanese currency
against the US dollar, the euro and other currencies, an appreciation that
involved other factors such as falling interest
rates and the quantitative easing policy of the Federal Reserve Bank in the
United States. The yen has appreciated by more than 33% against the US dollar
since January 2007 and almost 13% since January 2010. It has gained about 3.85%
this year.
China, like all other investors, suffered losses due to the Lehman Brothers
bankruptcy in 2008 and the market crash related to the American subprime
housing loans fiasco. Since the start of 2009 it has sought to diversity its
investments, turning its attention to Japan on recognizing that stocks there
were undervalued after 20 years of deflation in the country.
It started to build up investments on a large scale at the beginning of 2010.
China Investment Corp, a Chinese sovereign wealth fund, invested about just
under two thirds of its total fund of $300 billion in Japan. The track record
of one of its investment vehicles, the Australia-based OD05 Omnibus fund, shows
that it keeps buying new shares without cashing in past stock investments.
According to one estimate, the fund had an unrealized profit worth 175.8
billion yen by the end of February 2011.
Foreign investors were net buyers of Japanese equities to the extent of 3.2
trillion yen, according to a Tokyo Stock Exchange report, which means China
accounted for the bulk of net buying of Japanese equities that year.
Other data show that the most bulk foreign buying of JGBs in 2010 was from
various central banks rather than by individuals or private funds - and mainly
the China central bank.
China has distributed a small fraction of its US$3.2 trillion dollar foreign
reserves to several global asset management companies, such as Goldman Sachs,
BNP Paribas, BlackRock, State Street Bank, Alliance Bernstein, AXA Rosenberg
and others. More than $1 trillion each are managed by three of them.
It is difficult to ascertain exactly out how much from these global asset
management companies' buying actually belongs to China. In the United States,
every foreign government has to file a report to its stock exchange if it buys
equities worth $100 million or more. There is no such requirement in Japan.
It is possible that the increase in Chinese investment in Japan may be much
more than the roughly 10.5 trillion yen indicated in Japan's balance of
payments statistics for last year. Investment from Hong Kong surged twofold to
about 2.41 trillion yen, and from Singapore nearly fourfold to about 5.52
trillion yen. Much of this appears to be investments from China.
China has assumed a dominant position in purchasing resources in African and
other countries and of stocks, bonds and private real estate elsewhere, as its
foreign reserves climb - at $3.2 trillion they dwarf those of Japan's $1.1
trillion.
In addition to shares, Chinese money - through the country's sovereign wealth
fund, wealthy individuals and companies - is also buying real estate in Japan,
which is trickier to trace. A boom in the number of Chinese tourists to Japan
brings more Chinese money into the country.
The huge inflow of Chinese capital in various forms to Japan means increased
demand for yen, and the possibility of further increases in the Japanese
currency's value is encouraging investors to park their money in yen marketable
securities.
The yen's appreciation last year and in the first half of 2011 and is going to
continue during the next few years, as in addition to capital inflow from
China, there are several other factors as well contributing to its
appreciation.
The stronger currency helps cut costs to Japan and its industries of imports
oil and other natural resources on which its manufacturing might depends.
However, it also makes its exports of completed products more expensive and
less competitive - increasing pressures to move factories overseas and improve
productivity at home.
Hussain Khan holds a master's degree in economics from Tokyo University
and has worked in Japan as an equities analyst. He is an independent
Tokyo-based analyst on current affairs and economic issues for various
newspapers and magazines and he is a specialist on the Japanese economy. He can
be contacted at cj@ourquran.com.
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