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First-batch special bond issue imminent

(Reuters)
Updated: 2007-07-05 10:46

The Ministry of Finance will soon kick off the sale of 500 billion yuan ($65.82 billion) in bonds, as the first batch of its planned 1.55 trillion yuan special bonds, the China Business News reported on Thursday.

The finance ministry has submitted an application to the State Council, or cabinet, to launch the first-tranche offer, the Shanghai-based newspaper quoted unnamed sources as saying.

The remaining more than 1 trillion yuan bonds should be issued in two batches, with each averaging around 500 billion yuan, according to the need of China's new overseas investment agency, the report said.

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The proceeds raised from the bond issue will be used to fund the establishment of the investment agency, which will help invest part of China's ballooning foreign exchange reserves in overseas markets.

The newspaper quoted an unnamed Ministry of Finance official as saying the bonds would not be issued directly to the People's Bank of China, or central bank, although the offer would lead to an increase in the amount of bonds held by the central bank.

Similar remarks by an unnamed Finance Ministry official were also published in the Shanghai Securities News.

The Finance Ministry official was also quoted as saying that the special bond issue should not have a direct impact on money supply, although the central bank can use the special bonds to gradually absorb liquidity through open market operations.

The official also said the issue was not aimed at cooling the country's stock market, which has fallen amid shrinking turnover in the past few days partly because of investors' jitters that liquidity would be tightened by the issue.