Korea’s central bank said Wednesday that it has won approval from China to invest in yuan-denominated stocks and bonds, joining a string of local financial institutions seeking direct investment in the world’s No. 2 economy.

The Bank of Korea received the qualified foreign institutional investor license from the China Securities Regulatory Commission, which allows the central bank to invest in stocks and bonds traded in Shanghai and Shenzen stock markets, it said in a statement.

The license allows the BOK to invest up to $1 billion, according to a bank official. The BOK applied for the license in October to diversify the country’s foreign exchange reserves.

The People’s Bank of China also gave the green light to the BOK to participate in the inter-bank bond market in China, South Korea’s central bank added.

The BOK’s investment in yuan-denominated assets will be “gradual” and it plans to take a mid- to long-term approach. The currency mix consisting of the nation’s foreign reserves will not see a big change, it added.

South Korea’s foreign reserves reached $306.4 billion in December, the seventh-largest in the world. As of 2010, 36.3 percent of its foreign reserves were non-dollar assets.

The central bank received the license as a string of institutional investors in South Korea sought to raise holdings of renminbi-denominated assets.

Earlier this month, the National Pension Service, South Korea’s state-run pension fund with around 346 trillion won ($303 billion) under management, said it received the QFII license.

The country’s sovereign wealth fund, Korea Investment Corp. was also granted the QFII license this year, seeking to invest up to $200 million in the Chinese stock markets. 

(Yonhap News)