'China fund' turns to Japan amid Europe fears

Europe's financial turmoil has seen the Chinese government quietly pour tens of billions of dollars into Japan's stock market, analysts say, despite the neighbours' lingering historical animosity.

For years, the two Asian powerhouses have eyed each other suspiciously with frequent diplomatic spats flaring over territorial claims and longstanding disputes, largely stemming from Japan's wartime record.

But with economic ties improving and Europe in a debt crisis, an ever more practical Beijing is buying up shares of Japanese firms as it looks for safer places to park its mountainous foreign-exchange reserves, the world's largest.

A fund known as OD05 Omnibus, widely viewed as linked to Beijing, was a major shareholder in 174 Japanese firms by the end of March, including names such as Toyota and Nikon, said a survey by the Nikkei business daily.

The paper put the value of its Japan investments at a record 3.58 trillion yen ($45 billion).

The survey showed the fund's shareholdings have more than tripled since 2008, when the collapse of Wall Street titan Lehman Brothers triggered an unprecedented shock to the global financial system.

The ownership of Omnibus, reportedly based in Australia, has never been publicly acknowledged.

But dealers view it as being backed by China's sovereign wealth fund, China Investment Corporation (CIC), and charged with helping manage some of Beijing's more than $3.0 trillion foreign currency war chest.

"When Europe is in such financial turmoil, Beijing needs to diversify its investment destinations," said Tsuyoshi Ueno, senior economist at NLI Research Institute in Tokyo.

"China has so much in foreign currency reserves, and they need to invest it in blue-chip companies."

The CIC's chairman has reportedly said the fund was scaling back its European equity and bond holdings, telling the Wall Street Journal this month that "there is a risk that the eurozone may fall apart and that risk is rising".

Japan's economy has struggled for years, but it is increasingly seen as a port in the storm for investors, while Europe struggles to rein in its finances and questions swirl about a solid recovery in the United States.

Omnibus's portfolio includes a 1.9 percent stake in Toyota, a 2.2 percent holding in rival automaker Honda, a 1.9 percent share of camera giant Nikon, and a 2.5 percent stake in construction machinery maker Komatsu, the Nikkei survey said.

A Toyota spokeswoman declined comment on individual holdings of its stock, saying it was "up to investors what shares they invest in".

The Nikkei figures come at a time when Tokyo and Beijing forge ever closer economic ties, two years after China wrested the title of world's second-largest economy from Japan, a longtime export powerhouse.

Recent Bank of Japan data showed China has become a major holder of Japanese government and corporate debt, outpacing the United States and Britain.

In March, China, which is Japan's largest trading partner, approved Tokyo buying its government bonds, a move that analysts said appeared to be the first time a major economy had bought debt directly from Beijing.

The Asian powers have also started direct trading between the Chinese yuan and the yen to ease cross-border business, including corporate acquisitions which have often been completed using dollars.

The agreement -- the yen is the only major currency other than the greenback to trade directly against the yuan -- comes as Beijing continues its long-term bid to turn the yuan into a global unit rivalling the dollar.

A Chinese fund manager said Omnibus quietly invests in a cross section of corporate Japan, but deliberately keeps its stake well below majority ownership.

However "there is nothing wrong with the Chinese investment, and it's not bad news for Japanese companies", said Yasuyoshi Masuda, an economics professor at Japan's Toyo University.

He acknowledged Japan should be wary of Chinese government investment in firms with links to the military or secret technology, said that otherwise "Japan's stock market should welcome foreign capital investment".

"It's not like the Chinese fund owns more than 50 percent of a major Japanese firm," he added.


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