China, Japan and South Korea agreed yesterday to boost cross-investment in government bond markets, worth nearly a combined US$15 trillion, in a move that will better prepare the countries to protect their financial markets from external shocks.
The three economic powers sought a rare formal agreement on securities investment to ease mutual concerns about possibly massive cross-border fund flows and because their capital markets are at different levels of development.
The move comes as many of the heavily exposed economies in East Asia have struggled to find ways to avoid a repeat of the 1997 to 1998 Asian financial meltdown and other turmoil that has struck during times of crises originating outside the region.
“We agreed to promote the investment by the foreign reserve authorities in [each other’s] government bonds, further strengthen our cooperation, including information sharing and thereby enhance the regional economic relationship among the three countries,” they said in a joint statement issued after a meeting of finance and central bank chiefs in Manila.
Local currency-denominated government bonds in the three countries amounted to US$14.61 trillion at the end of last year, with Chinese and Japanese bonds accounting for 97 percent of the total, Asian Development Bank (ADB) data showed.
“We agreed to have working level officials from the three countries further discuss the methods and procedures of the cooperation,” they added.
Officials in Seoul had said the three were seeking ways to avoid conflicts that could arise from one country’s massive holdings of another’s bonds.
China started buying South -Korea’s local-currency government bonds a few years ago, but Seoul began to invest in Chinese bonds only recently. Japan also recently announced a plan to buy China’s bonds and is considering buying South Korea’s.
Finance ministry and central bank chiefs from the three countries met ahead of a meeting with their counterparts from the 10-member ASEAN.
The ASEAN+3 meeting is also in Manila and begins later in the day.
Finance chiefs from the 13 countries meeting on the sidelines of the ADB’s annual meetings, being held in Manila this year, are likely endorse ways to strengthen and improve their pool of currency swaps, launched about a decade ago.
They are expected to approve doubling the Chiang Mai Initiative Multilateralisation Program to US$240 billion, cut the amount tied to IMF programs from 80 percent now to 70 percent and extend the maturities of swaps from 90 days to up to 12 months, one official said.