China's plan to issue 1.55 trillion yuan ($200 billion) special bond to fund its new overseas investment agency will do little to reduce liquidity because the bonds will be used to replace central bank bill issues, a report said on Friday.

The report, carried on the front page of the China Securities Journal, came after China's main stock index fell 5.25 percent to its lowest close in 10 weeks on Thursday.

Investors feared a flood of new listings and the special bond issue would pull liquidity from the market. "As the market is worried that the special bond issue will drastically tighten liquidity, experts say that because the special bond will replace part of central bank bills, it will have no direct impact on money supply and market liquidity," it said.

Such bonds, expected to be offered in three to four tranches by the end of March, will gradually replace central bank bills as a tool to adjust liquidity through regular open market operations, the report said.

Nearly 1.5 trillion yuan worth of central bank bills will mature in the second half of this year, which, along with more liquidity to be created by China's growing trade surplus, will more than offset the impact from the special bond issue, it said.

"When those bills mature, the central bank will no longer issue new bills. Instead, it will sell the special bonds," it added.

It also noted that the special bonds would not be directly issued to the People's Bank of China, or central bank, which is constrained by law from issuing such bonds.

They are likely to be issued through a third party, through which the bonds would be swapped for central bank bills, it said.

The China Business News, citing unnamed experts, said an unlisted state-run bank, such as the Agricultural Bank of China, could be a candidate.

On Thursday, the newspaper said China would soon kick off the sale of 500 billion yuan in special bonds, as the first batch.