MercoPress. South Atlantic News Agency

China interested in Latam bonds and Yuan swaps to ensure trade

China is likely to buy more Latin American bonds and promote Yuan swaps to support increased public spending in the region to combat the global financial crisis, revealed a Beijing think tank researcher.

Huang Zhilong from the Institute of Latinamerica, belonging to the Chinese Academy of Social Sciences said China will also probably buy bonds issued by the Inter-American Development bank (IADB).

“China has promised to buy bonds issued by the IMF and is very likely to buy bonds issued by the IADB” added Huang.

Zhou Xiaochuan, governor of the People's Bank of China (central bank) said over the weekend that China, IADB newest member, would support the multilateral lender's capital expansion plans. China has a 0.004% stake in the organisation.

“If the IDB issues some kind of financing instrument like a bond or note, we can consider supporting it,” Zhou told reporters during the IDB annual meeting in Colombia.

IDB, the region’s main multilateral financial organizations and one of its top lenders is considering hiking its capital to 280 billion US dollars from 101 billion. Huang said China would support Latam governments’ efforts to boost economic growth.

“They have to issue more government debt to weather the crisis” he said. “And China will buy these sovereign and public bonds in the coming two or three years.”

Buying more Latin American bonds would fit into Beijing's stated strategy of diversifying its 2 trillion foreign exchange reserve portfolio and forging closer political ties with countries that are big exporters of commodities to China.

“But Latin American bonds are known for their high risk, so the actual purchase volume wouldn't be huge. China’s foreign exchange authorities will be very cautious” warned Huang.

China’s trade with Latinamerica ballooned to 140 billion US dollars in 2008 from 15 billion in 2001, making China the region’s largest trading partner after the United States.

Precisely on Sunday Zhou signed a 70 billion Yuan currency swap with Argentina so it can pay for Chinese imports in Yuan instead of scarce US dollars. This is Beijing’s first bilateral currency swap with Latinamerica, but Huang said the Yuan may come to be used more widely to settle trade with the region. For example Yuan for oil or soybean imports.