From the Readers
Offshore funds in HK can utilize China’s reserves
(chinadaily.com.cn)
Updated: 2010-07-12 15:07
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Comment on "Don't buy Japan's bonds" (China Daily Website, July 12)
It's quite right to use your reserves to recalibrate your economy. However, one cannot tell exactly how the Japanese government's debt will turn out eventually as they also have substantial reserves.
The China-Japan link is an interesting one. Japan is an economy and country that China must compete against and yet Japanese society is one that Chinese society cannot alienate or abandon.
It will be more appropriate for China to start competing for Japanese society's savings, both institutional and individual. It will be good to set up investment/loan funds in the Hong Kong market to attract renminbi-denominated investments from the Japanese.
These funds can then be channeled as loans to Chinese business entities, which will use them to expand businesses eastward and southward down to Australia. With a bit of foreign borrowing, Chinese enterprises will be encouraged to improve its efficiency and competitiveness so as to ensure their ability to service and repay the debts - the need to preserve reputation. If these institutions are properly regulated, monitored and they do genuinely perform, then China will see greater success. However, if Chinese business entities cannot ensure that they can repay such borrowings, then it is pointless to pursue such a path.
This will give Chinese enterprises a certain degree of international profile since they have to take care of Chinese equity and loan investors as well as some foreign investors through trust funds. Of course, strategic Chinese national companies should be prohibited from attracting such funds.
Apart from business expansion, these funds can also be used to buy any sovereign bonds issued in renminbi.
Asian Biz, on China Daily Website
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