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BOK to buy yuan bonds

By Song Shengxia (Global Times)

07:59, July 03, 2012

China has approved the Bank of Korea (BOK), South Korea's central bank, to buy Chinese bonds worth up to 20 billion yuan ($3 billion) through interbank bond market and the purchases have already started, a BOK official said Monday.

"Our bank has got approval from the Chinese government to buy yuan-denominated bonds in China through the interbank bond market. The limit of such bonds is 20 billion yuan or $3 billion," an official at BOK who wished to be anonymous told the Global Times over the phone Monday.

The bank has already started making the purchases and will do so "slowly and continuously" given the large sum involved, the official said.

China eased restrictions on foreign government investment in yuan-denominated stocks and bonds in 2010.

Previously, China only allowed foreign institutional investors that met certain conditions under the Qualified Foreign Institutional Investor (QFII) scheme to buy yuan-dominated bonds and stocks.

The BOK has also been allowed to buy $300 million worth of Chinese stocks as a QFII, Reuters reported in April. The BOK official confirmed the amount and said the bank is expected to complete the purchases by the end of the month as requested.

"We want to diversify our investment portfolio and the yuan is a good choice compared to other currencies," the official said.

The State Administration of Foreign Exchange (SAFE) could not be reached for comment Monday.

A document released by the SAFE Thursday showed that it approved BOK in March to invest $300 million in Chinese stocks under the QFII scheme.

The growing interest by a number of other countries in Chinese bonds and stock markets recently underscores the greater role of the yuan as an international investment currency, analysts said.

On Friday, Hu Xiaolian, a deputy governor of the People's Bank of China, said at the Lujiazui Forum in Shanghai that a growing number of countries, not only from China's neighboring countries and regions but also from North Africa, Europe and the Middle East, are looking to add the yuan as their official foreign-currency reserve.

"A window of opportunity has been opened for foreign government investment in China's bonds and countries particularly those with large trade transactions with China are bound to increase their purchases given the growing influence of the yuan," Song Guoliang, a finance professor at University of International Business and Economics, told the Global Times.

"However, to further boost the yuan's role as a global currency, we should further ease foreign exchange controls to facilitate capital flows and allow the yuan to be freely convertible," he said.

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