The Ministry of Finance (MOF) will issue 600 billion yuan (US$78.9 billion) of special treasury bonds to the Agricultural Bank of China (ABC) next week, the first batch of a planned 1.55 trillion yuan sale, the Beijing Times confirmed in a report on Thursday.

 

In an act of financial maneuvering, ABC will then act as an intermediary channeling the bonds from MOF to the central bank, which in exchange will release part of its foreign exchange reserves for overseas investment, according to the report.

 

It is widely expected that as the eventual holder of the special bonds, the central bank will use them as a financial tool to absorb excessive liquidity in the domestic market.

 

In June, the National People's Congress (NPC) approved the sale of 1.55 trillion yuan in special treasury bonds. The sale is to be conducted in three batches, with 600 billion yuan for the first and second batch and 350 billion yuan for the third batch. Altogether, they will fill in the registered capital of the foreign exchange investment company, which will begin operations in September to diversify investment channels for the nation's foreign exchange reserves, according to the report.

 

By the end of June, China had the world's largest foreign exchange reserves of more than US$1.3 trillion. Investing the huge sum into more profitable areas remained an important task for financial regulators.

 

Analysts also believe that the issuance of the special bonds suggests a new round of foreign exchange investment is on its way.

 

(Chinadaily.com.cn August 18, 2007)