China's legislature on Friday authorized the Ministry of Finance
(MOF) to issue 1.55 trillion yuan of special treasury bonds to fund
the planned foreign exchange investment company.
The legislature also approved the raising of the ceiling on
treasury bond issues for 2007 to 5.34 trillion yuan.
The motion was adopted at the ongoing 28th session of the
Standing Committee of the National People's Congress.
The bonds will be used to purchase US$200 billion for the
national foreign exchange investment company as operating
capital.
"The issue of the special treasury bonds should be regarded as a
neutral measure," said an MOF official after the motion was
adopted.
"The motion is to rein in excess liquidity," said the official,
adding the influx of foreign capital in recent years had resulted
in excess liquidity, bringing inflationary pressures.
The special treasury bonds will be issued in the form of
negotiable book-entry T-bonds with a term of more than ten years.
The coupon rate will be decided by the market, according to the
motion.
At the same time, a "central finance forex management fund" will
be established to examine the revenue and expenditure of the
special treasury bonds and forex assets, said the motion.
Launching a forex investment company would decrease China's
forex reserves while increasing its operating profits, said the
official.
By the end of March, China's forex reserves had reached US$1.2
trillion, up US$135.7 billion from the end of 2006.
After adopting labor contract law and the amendment to the
income tax law and approving a couple of motions and bills, the
six-day session of the Standing Committee of the National People's
Congress concluded on Friday.
It also approved the cabinet nomination of Chen Zhu, who has no
party affiliation, as the country's new health minister.
(Xinhua News Agency June 30, 2007)