September 11, 2010 08:42
Chinese capital is flowing into Korea in a reversal of the traditional direction, with Chinese investors snapping up Korean sovereign bonds and a growing number of Chinese companies listing themselves on the Korea Exchange.
◆ Purchasing Sovereign Debt
Few Chinese investors were interested in the Korean bond market until August last year, but since then they have bought an average of W300 billion (US$1=W1,166) worth of Korean bonds a month. In May this year, Chinese investors were net buyers of more than W500 billion worth of Korean bonds.
According to the Financial Supervisory Service, Chinese investors held W4.74 trillion worth of Korean bonds as of the end of August, or 6.35 percent of all Korean debt owned by foreign investors, making China the third-largest buyer of Korean bonds after the U.S. and Luxembourg.
Chinese investors started buying up Korean bonds at about the same time they began dumping U.S. Treasuries. Analysts believe this is part of a strategy to diversify China's foreign investment after the U.S. economy showed signs of entering an extended slump after the global financial crisis.
◆ Equity Investments
Chinese capital is flowing into Korea's stock market as well, rising from W1.38 trillion at the end of 2009 to W1.76 trillion as of the end of August. Although that is a small amount compared to the total W311 trillion worth of Korean shares owned by foreign investors, the rate of increase is notable, rising 28 percent in just eight months.
That amount does not include Chinese investment through third countries, so the actual amount is expected to be much larger. As a result, Korea's capital account with China reversed last year, shifting from a $1.5 billion deficit in 2008 to a $464.8 million surplus last year.
◆ Listing on Korea Exchange
Since 3NOD Digital Group listed itself on the Korea Exchange in August 2007, 13 other Chinese businesses have followed suit. It costs up to 38 times less for a Chinese company to list itself on the Korea Exchange than it does on the Singapore or Hong Kong bourses. Also, the Korea Exchange has about 3.6 times more liquidity, making it easier to raise capital.
At Shinhan Investment, which was involved in the listing of three Chinese companies here, 40 percent of the workers in the team responsible for listing foreign companies on the Korea Exchange are Chinese workers. Kim Yong-sang, head of corporate listing at the Korea Exchange, said, "From now on, we will be seeing more Chinese companies appear on the Korean stock market."
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