A record surge in Chinese currency reserves serves as a timely reminder that its pledge to buy bonds from indebted European states makes a virtue out of a necessity. So much has been made of Chinese promises to buy Spanish and Greek debt that somewhere along the way it was forgotten that euro investments are nothing new for Beijing.
A $199 billion jump in China's foreign exchange reserves in the final three months last year, the most ever for a quarter, dictates that it would need to put upwards of $15 billion a month into European assets just to maintain its current portfolio allocation.
China has been working for years to diversify its official currency reserves, which now sit at a record $2.85 trillion, and the euro has been the primary alternative to the dollar, taking an estimated 25 percent, or about $710 billion.
"We will over the medium term continue to diversify our FX reserves, but as reserves increase, US assets will still form the principal direction for our investments," said Zhang Ming, an economist at the Chinese Academy of Social Sciences, a top government think-tank in Beijing. "This is the only feasible option," he said. "There are still too many risks in Europe."
Europe is hardly alone. Other countries have also seen a marked rise in Chinese cash inflows over the past year as Beijing scours the earth to find a home for its bulging reserves.
It has bought record amounts of Japanese and South Korean debt, and has also reportedly dipped its toes into Brazilian, Canadian and Australian issues.
Given a 25 percent allocation in euros, the overall rise in China's reserves last year implies that it parked some $100 billion in European assets during that time, with the pace of investment increasing sharply in recent months.
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