China, Japan and South Korea agreed to promote the use of their foreign exchange reserves to invest in each other’s government bonds to strengthen regional cooperation and stave off the impact of the European debt crisis.
In a joint statement released by the Bank of Korea, the countries said they aim to further enhance their economic relationship to counter risks and uncertainties in the global economy.
The statement was made after a meeting of the three countries’ central bank governors and finance ministers in Manila on Thursday.
The three countries also agreed to improve information sharing to further deepen regional ties.
“Our view is that overseas demand, especially from central banks for foreign exchange reserve diversification, is one factor behind a medium-term convergence of long-term rates in South Korea and the global US benchmark,” said Young Sun Kwon, a Hong Kong-based economist at Nomura Holdings Inc.
Central banks in East Asia boost bond ties
Some economists believe that Chinese economic growth has been in fact understated during much of the 1990s and early 2000s, failing to fully factor in the growth driven by the private sector and that the extent at which China is dependent on exports is exaggerated. The two most important sectors of the economy have traditionally been agriculture and industry, which together employ more than 70 percent of the labor force and produce more than 60 percent of GDP.