China's finance ministry confirms sale of 600 bln yuan special bonds

China's finance ministry confirms sale of 600 bln yuan special bonds - UPDATE2

	Published : Wed, 29 Aug 2007 13:40 By : Agencies Print this Story

BEIJING (XFN-ASIA) - China's finance ministry confirmed that it has issued 600 bln yuan worth of 10-year special treasury bonds to Agricultural Bank of China with 4.30 pct coupon.

The ministry said in a statement posted on its website that the issue will ease sterilisation pressure on the central bank brought about by China's external account surplus.

It will also help policy coordination between the treasury and central bank, and will enable adjustment of liquidity in the system through buying and selling of the bonds, the ministry said.

China's central bank is forced to inject liquidity into the country's banking system as it buys back foreign exchange under the current exchange rate regime.

China's parliament had earlier approved the issue of 1.55 trln yuan worth of special treasury bonds by the finance ministry.

The proceeds raised from bond sale to commercial banks will be used to purchase foreign exchange from the central bank, which will in turn buy back the bonds from commercial banks.

The foreign exchange the treasury receives will be used to fund China's new state foreign exchange management agency.

The new agency's name has been officially spelt out as China Investment Co Ltd.

The finance ministry said the bond sale was arranged in such a way to ensure the transaction abides by 'market rules'.

The ministry confirmed that the bonds were issued to Agricultural Bank in a separate statement posted on the official Chinabond website.

The ministry assured that the issue will not affect normal operations of commercial banks.

'The central bank will use the proceeds from selling its foreign exchange to buy back the special bonds from commercial banks, so it wouldn't affect their liquidity positions, assets and liabilities, or their normal operations,' it said.

(1 usd = 7.55 yuan)

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China's finance ministry confirms sale of 600 bln yuan special bonds - UPDATE2