Japan's Public Pension "Will Not Invest in Chinese Government Bonds"

[Image source=Reuters Yonhap News]

[Asia Economy Reporter Kim Suhwan] Japan's public pension fund, the Government Pension Investment Fund (GPIF), has announced that it will not invest in Chinese yuan-denominated government bonds for the time being.

On the 29th, Nihon Keizai Shimbun reported that Japan's GPIF, the world's largest government public pension fund, plans not to hold Chinese government bonds in its asset portfolio.

Nihon Keizai Shimbun stated that the background to GPIF's decision reflects the crisis of Evergrande Group (恒大·Evergrande), China's second-largest real estate company.

Currently, Evergrande Group's debt amounts to $302 billion (approximately 358 trillion KRW). Evergrande is facing a default crisis as it has failed to pay bond interest on time. The default of Evergrande, China's second-largest real estate company, could pose a potential threat not only to China but also to the global financial market.

GPIF also announced that it plans to refer to the FTSE World Government Bond Index as a standard for future asset investments. It is known that this index does not include Chinese government bonds.

Nihon Keizai Shimbun reported that the GPIF board has shown a tendency to avoid investing in bonds of Chinese nationality, citing liquidity crises of Chinese companies.

Earlier, GPIF Chairman Masataka Miyazono mentioned in July that GPIF needs to be cautious about investing in Chinese government bonds.

Nihon Keizai Shimbun explained that this is based on the judgment that investing public pension assets in China is politically disadvantageous amid the recent deterioration of diplomatic relations between Japan and China.

However, since the yield on Chinese government bonds is relatively higher than that of other countries' bonds, avoiding investment in Chinese government bonds may result in GPIF failing to achieve its yield targets.

GPIF's decision is expected to influence public funds and private pensions within Japan. Bloomberg reported that these funds have also been deliberating whether to invest in Chinese government bonds.

In July, a fund manager who uses GPIF's portfolio as an investment benchmark stated that if Chinese government bonds are included in the FTSE World Government Bond Index, they would consider investing in Chinese government bonds.