Here’s another reason to be cautiously optimistic this morning. China starts to change the game with a move into South Korean treasury debt.

The news that China has been buying South Korean treasury debt as a way of diversifying its foreign reserves will come as music to the ears of the Asian Development Bank (ADB).

The bank has been in the forefront of efforts to persuade Asian governments to invest more of their vast surpluses in Asian assets rather than accumulate ever more bonds US and EU bonds. The Asian Bond Fund which is traded in Hong Kong jumped nearly 1 percent on this news.

Having become nervous about both the US dollar and the euro and already holding a lot, relative to market size, of Canadian and Australian debt, China has been buying a huge amount of yen debt, helping push the Japanese currency close to its all-time high. China’s move into Japanese debt was actually rather belated, perhaps the result more of political antipathy than investment judgment.

But China’s purchase of Korean bonds highlights both its wider search for diversity. It also points to major contribution China’s surpluses could play in spurring Asian infrastructure investment if it means that countries such as Indonesia and Thailand are able to issue and sell overseas more public debt in their own currency and so eliminating the exchange rate risks incurred by borrowing with dollar and euro-denominated bonds.

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Filed under: Business/Economy, East Asia, IGOs, Korea Tagged: adb, asian bond fund, asian develpment bank, china, prc, rok, South Korea, treqsury bonds