Australia to buy Chinese government debt

Australia announced it will buy 5% of China's government debt, deepening economic ties between the two Asia-Pacific nations.

Story highlights

  • Australian central bank to invest 5% of foreign reserves in Chinese bonds
  • Bond investment is Australia's newest economic move tying country to China
  • Australia set up direct currency link with China earlier this April, following U.S., Japan
  • Chile, Japan, Malaysia all hold renminbi assets, some referred to as "dim sum" bonds

The Australian central bank plans to invest about 5 per cent of its foreign reserves in Chinese government bonds, in the latest move to build closer economic ties between the two countries.

"This decision to invest in China is an important one. It reflects the broader economic relationship between China and Australia and our increasing financial ties", Philip Lowe, deputy governor of the Reserve Bank of Australia, said in a speech on Wednesday in Shanghai. "It provides greater diversification of our investments and will help with our understanding of the Chinese financial markets."

Earlier this month, Australia became only the third country to establish a direct currency trading link with China, after the US and Japan. The RBA and the People's Bank of China also set up a currency swap facility in March 2012. The RBA had around A$38.2bn ($39bn) in foreign reserves at the end of March.

China is Australia's top export destination, and its biggest source of imports. Last year, more than a quarter of Australia's exports -- mainly commodities -- went to China, up from less than 5 per cent during the 1990s, according to the RBA.

Australia will join a small but growing band of central banks that have looked to China to diversify their foreign reserves.

    Just Watched

    China changing tone on North Korea?

China changing tone on North Korea? 03:04
PLAY VIDEO

    Just Watched

    China's GDP expected to grow

China's GDP expected to grow 03:50
PLAY VIDEO

    Just Watched

    China economy: Growing or slowing?

China economy: Growing or slowing? 04:26
PLAY VIDEO

Chile, Japan, and Malaysia all hold renminbi assets, often in the form of offshore bonds -- known as "dim sum" bonds -- while Nigeria's central bank holds around 10 per cent of its reserves in the Chinese currency.

Recent regulatory changes have opened up China's onshore bond and equity markets to global investors through the renminbi qualified institutional investor (RQFII) quota scheme.

    Foreign investors were previously limited to investing in the equity market, and to using US dollars. Mr Lowe said the PBoC had already approved a quota for the RBA to invest.

    In March last year, Japan became the first major developed country to receive approval to invest directly in Chinese sovereign debt.

    China has sought to open up new investment channels for renminbi holders as part of its efforts to internationalise its currency. Limited investment avenues have been one factor deterring foreign companies from receiving trade earnings in the Chinese currency.

    But Mr Lowe said he was optimistic that once some of the existing constraints were overcome, the renminbi would "become the invoicing currency of choice for many businesses on both sides of our trading relationship".

    Last year, around 12 per cent of China's trade was settled in renminbi, but that is forecast to rise to about 15 per cent this year by Deutsche Bank.

        CNN Business

      • An Iraqi worker adjusts a control valve at the Daura oil refinery on November 5, 2009 in Baghdad, Iraq. Iraq and a grouping of U.S and European oil companies Exxon Mobil Corp and Royal Dutch Shell PLC signed a $50 billion contract today to develop the West Qurna oilfield, two days after the Iraqi South Oil Company signed a technical service contract with Britain's BP and China's CNPC to develop the Rumaila oilfield. The Iraqi government is trying to attract foreign investment, especially in the oil sector, in hopes of reviving its war-torn economy. Iraq has the third largest oil reserve in the world but it is producing way below its potential. (Photo by Muhannad Fala'ah/Getty Images)

        Airstrikes, rebels seizing control of oil fields, plus a severe refugee crisis are a recipe for market panic. So why are Iraq oil prices stable?
      • A view of gloves and boots used by medical staff, drying in the sun, at a center for victims of the Ebola virus in Guekedou, on April 1, 2014. The viral haemorrhagic fever epidemic raging in Guinea is caused by several viruses which have similar symptoms -- the deadliest and most feared of which is Ebola. AFP PHOTO / SEYLLOU (Photo credit should read SEYLLOU/AFP/Getty Images)

        The biggest Ebola outbreak in history is taking its toll in Western Africa, hitting some of West Africa's most vulnerable economies.
      • People enter a casino in Las Vegas, Nevada, on April 18, 2009. Las Vegas is the most populus city in the US state of Nevada and internationally renowned major resort city for gambling, shopping, fine dining and entertainment. Las Vegas which bills itself as the �Entertainment Capital of the World� is famous for the number of casino resorts and associated entertainment. AFP PHOTO/Jewel SAMAD (Photo credit should read JEWEL SAMAD/AFP/Getty Images)

        Macau has overtaken Switzerland in the wealth stakes, being named the world's fourth richest territory by the World Bank.
      • spc marketplace middle east ata atmar a_00010015.jpg

        Saudi Arabian Bateel brand is best known for its delectable dates but it now has more than a dozen cafes and a new bakery in the works.
      • Vantablack designed by Surrey NanoSystems absorbs 99.96% of all light. It however will not be the solution to the creating the world's ultimate slimming black dress! A dress made out of this material would render the curves and contours of the human body invisible and would leave the wearer looking like 'two dimensional cardboard cut-out.'

        A British nanotech company has created what it says is the world's darkest material. It is so dark the human eye can't discern its shape and form.
      • Jibo robot is designed to be an organizer, educator and assist family members. CNN's Maggie Lake met him and says she was impressed with his skills.
      • A picture taken on March 15, 2014 shows children playing at the sprawling desert Zaatari refugee camp in northern Jordan near the border with Syria which provides shelter to around 100,000 Syrian refugees. Syrian refugees in the seven-square-kilometre (2.8-square-mile) Zaatari camp in Jordan fear that President Bashar al-Assad's likely re-election this year will leave their dream of a return home as distant as ever. The brutal war in Syria between the regime and its foes shows no sign of abating and has killed at least 146,000 people since it erupted in mid-March 2011. And 2.5 million Syrians have fled abroad and another 6.5 million have been internally displaced. Jordan is home to more than 500,000 of the refugees.

        Sandwiched in between Iraq and Syria, Jordan's destiny seems to be one of a constant struggle for survival. John Defterios explains.
      • SHEFFIELD, ENGLAND - NOVEMBER 18: Queen Elizabeth II wears 3 D glasses to watch a display and pilot a JCB digger, during a visit to the University of Sheffield Advanced Manufacturing Research centre, on November 18, 2010 in Sheffield, England. (Photo by John Giles - WPA Pool/Getty Images)

        At the last football World Cup, it was all about 3D. This time around, it's nothing less than 4K.
      • An Iraqi worker adjusts a control valve at the Daura oil refinery on November 5, 2009 in Baghdad, Iraq. Iraq and a grouping of U.S and European oil companies Exxon Mobil Corp and Royal Dutch Shell PLC signed a $50 billion contract today to develop the West Qurna oilfield, two days after the Iraqi South Oil Company signed a technical service contract with Britain's BP and China's CNPC to develop the Rumaila oilfield. The Iraqi government is trying to attract foreign investment, especially in the oil sector, in hopes of reviving its war-torn economy. Iraq has the third largest oil reserve in the world but it is producing way below its potential. (Photo by Muhannad Fala'ah/Getty Images)

        Iraq produces 3.3 million barrels per day and has the world's fourth-largest oil reserves. But the current crisis is putting all this in danger.
      • Valves of gas pipe-line are seen in the gas station not far from Kiev on March 4, 2014. The European Union will help Ukraine pay the $2.0 billion it owes to Russian gas giant Gazprom, a top official said Tuesday, as part of an aid package reportedly worth more than one billion euros. AFP PHOTO/ ANDREY SINITSIN (Photo credit should read ANDREY SINITSIN/AFP/Getty Images)

        The gas standoff between Russia and Ukraine could have a knock-on effect on Europe. Explore this map to find out why is the EU nervous.