China Aggressive with Investments in Korea

A growing influx Chinese capital into Korea has begun reversing the traditional relationship between the two economies.

Since last August Chinese investors have bought an average of $280 million of Korean bonds a month. This May they were net buyers of more than $435 million, bringing the total holdings of Chinese investors to $4.1 bil. in Korean bonds as of the end of this August. That puts China just behind the U.S. and Luxembourg with about 6.35% of all Korean debt held by foreigners,

There appears to be some correlation between the Chinese purchase of Korean bonds and their unloading of U.S. Treasuries. Some see this as a reflection of China’s strategy to diversify China’s foreign investment after the U.S. economy showed signs of renewed slowing earlier this summer.

China’s investments in Korea’s stock market has grown from $1.2 bil. at the end of 2009 to $1.5 bil. as of the end of August, a 28% jump in eight months. About $265 bil. worth of Korean shares owned by foreign investors.

Since August of 2007 when 3NOD Digital Group became the first Chinese company to list on the Korea Exchange, 13 corporations have followed. One reason is cost. It costs less than 3% as much for a Chinese company to list on the Korea Exchange than on the Singapore or Hong Kong bourses. The Korea Exchange is also 3.6 times more liquid, making it easier to raise capital.

These growing inflows have helped reverse Korea’s capital account balance with China from a $1.5 billion deficit in 2008 to a $464.8 million surplus last year.