China to continue diversifying holdings of foreign bonds


China's chief foreign exchange regulator said Monday that China will continue to implement the principle of diversifying its investment in foreign bonds, noting that the Chinese holdings of Eurozone bonds did not register losses as a portfolio.

Yi Gang, head of the State Administration of Foreign Exchange (SAFE), made the remarks in response to a question on China's holdings of Greek bonds and other Eurozone assets at a press conference on the sidelines of the ongoing annual parliamentary session.

Yi reiterated China's confidence in Europe despite the current debt crisis, saying China will continue to be a "long-term and responsible" investor in Europe.

"We believe Europe has the ability to ride out the European debt crisis with its own resources and help from the international community," Yi said.

The top foreign exchange regulator said the European debt crisis has eased a little bit recently with the European Central Bank (ECB) injecting huge liquidity into the market through its Long-term Refinancing Operation.

"But many problems have yet to be resolved, as the debt crisis is still developing," he said, adding that China supports a series of measures taken by the European Union, the ECB and the International Monetary Fund to work out solutions to the crisis.

In terms of the value of China's foreign exchange investment portfolio in Eurozone bonds, Yi noted that the revenues from China's investment portfolio in the Eurozone still beat the inflation levels in Europe despite the festering debt crisis.

Yi stressed that risk control will be the priority for China's foreign reserves investment, with an emphasis on safety, liquidity and potential revenues.

"We won't put all the eggs in one basket," he said, adding that the diversified investment strategy has helped China's foreign reserves assets withstand shocks from the U.S. subprime crisis, the bankruptcy of Lehman Brothers and the European sovereign debt crisis.

Investing in Japanese bonds may be one alternative, Yi said.

Chinese and Japanese leaders agreed to strengthen cooperation in the two countries' financial markets and encourage more bilateral financial transactions during Japanese Prime Minister Yoshihiko Noda's visit to China last year.

China and Japan agreed to encourage the direct use of Chinese currency, the Renminbi, or the yuan, and Japanese yen in cross-border transactions between the two countries, Yi said.

"We welcome the Japanese side to invest in China's bond market under the framework of the agreements," Yi said. "At the same time, we will invest in the Japanese bond market or other fixed-income products."

He said China and Japan have great potential for mutual investment in the fixed-income market, and particularly in the bond market.

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