By Shangguan Zhoudong (Chinadaily.com.cn)
Updated: 2007-08-15 09:31

China is planning to issue an initial tranche of 600 billion yuan in special treasury bonds, the China Business News reported today.

The expected issuance is part of 1.55 trillion yuan in special T-bonds sought to finance a new investment company that will help diversify the country's huge foreign exchange holdings.

The bonds are to be issued in three tranches, with the second and third tranches totaling 600 billion and 350 billion yuan respectively.

The bonds will be issued to the People's Bank of China, the central bank, through an asset swap, which will increase the central bank's T-bonds holdings.

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According to the report, the Agricultural Bank of China is likely to act as a middleman in channeling the bonds from the Ministry of Finance to the central bank.

The new investment company will formally open for business by the end of September.

Insiders said that it's uncertain whether certain senior officials will join the investment company. Candidates include Gao Xiqing, vice chairman of the National Council for Social Security Funds, Zhang Hongli, vice finance minister, and Su Ning, deputy central bank governor, who are members of the preparatory team.

Officials from the Ministry of Finance said that the bond issuance won't impact the money supply whether issued in whole or in tranches.

The central bank will use the special bonds to gradually absorb liquidity through open market operations.

The Standing Committee of the National People's Congress, China's top legislature, approved the massive sale of special T-bonds at the end of June this year.