Quora Answer: Is There a Political Risk in Having My Retirement Income in Chinese Bonds?

The following is my answer to a Quora question: “I would like to move most of my retirement investment into China bonds.  Is there a risk I will not be able to collect on them due to political events?”

Chinese sovereign bonds have a good rating, and will pay out regardless of the political situation.  An economy the size of China cannot afford not to pay out.  This will shatter the market confidence in the Chinese economy, and make it more expensive to borrow in the future.  China is not going to take that chance.

However, the concern here is your portfolio diversity.  If you move most of your portfolio to debt instruments, your risk is reduced.  Because it is only Chinese bonds, your risk then goes up.  And because these are debt instruments, your yield is not likely to be above the rate of inflation.  Your portfolio will be losing money in real terms.  That is not what I would recommend.