Friday June 5, 12:16 PM
China may buy up to $50 bln in IMF bonds: report
By Peter Harmsen
BEIJING (AFP) - China said Friday it could invest up to 50 billion dollars in the International Monetary Fund's first-ever bonds, state media reported, in yet another sign of the nation's growing financial muscle.
"If the IMF bonds meet our requirements in terms of safety and return on investment, we will actively consider buying up to 50 billion dollars of bonds," an unnamed official said, according to the Xinhua news agency.
"China has consistently worked to further the Fund's attempts to boost its financing via the market," said the official from China's State Administration of Foreign Exchange.
The 185-nation IMF is struggling to provide financing to countries in trouble amid the global financial and economic crisis.
It has been working to issue its very first bonds, and major developing economies such as Brazil, Russia, India and China -- known collectively as the BRIC countries -- are seen as potential buyers.
The IMF said last week that Russia intended to buy up to 10 billion dollars in the multilateral institution's bonds.
China's forex reserves are the largest in the world and currently stand at about 1.9 trillion dollars.
"China may actually have wanted to buy even more but the IMF did not necessarily want China to buy more at this stage," said Chen Xingdong, chief China economist with BNP Paribas (Paris: FR0000131104 - news) in Beijing.
"Whether you like it or not, it's difficult to change the structure of investments for its massive forex reserves in short term. There are not many options better than the US Treasuries, but IMF debt is a good alternative."
It had been rumoured for several months that China could make a major contribution to the IMF.
In April, British Prime Minister Gordon Brown told reporters that China had pledged 40 billion dollars to international financial institutions, Xinhua reported earlier.
Brown at the same time also said that China deserved greater influence at the IMF.
Any bid by China to expand its formal influence at the IMF is likely to encounter resistance, especially from Europe, which has traditionally supplied the fund's director general.
Buying a substantial amount of bonds could be the first step on the way towards expanding China's clout at the IMF, according to observers.
"It will help, although not significantly. But of course, China needs to seize all the opportunities emerging from this crisis," said Chen of BNP Paribas.
Meanwhile, East Asia's other giant, Japan, with one trillion dollars in forex reserves, has also boosted its support of the IMF.
Japan signed an agreement in February on the terms of a loan of up to 100 billion dollars to the IMF to provide financial lifelines to crisis-hit emerging countries.
Japanese Prime Minister Taro Aso had announced in November last year that Japan was prepared to provide supplementary funding to the IMF to help contain the current global crisis.
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