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'China fund' turns to Japan amid Europe fears

TOKYO--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 neighbors' 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 (US$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 US$3 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.

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