China's proposed sale of the latest batch of special treasury bonds next week won't largely affect short-term liquidity or dampen stock-market performance, industry analysts said yesterday.

 

The Ministry of Finance said it will sell 750 billion yuan (US$100 billion) of 15-year special treasury bonds to the central bank via the Agricultural Bank of China next Tuesday to raise capital for its state investment fund.

 

Analysts said the central bank may gradually use the special bonds as collateral for repurchase deals with commercial banks to soak up excess liquidity.

 

The sale may help the Agricultural Bank of China earn commission fees to prepare it for an initial public offering next year, they said.

 

This batch of special treasury bonds, to be sold to institutional investors on the interbank market at a coupon rate of 4.45 percent, is part of the ministry's plan to issue 1.55 trillion yuan of special debt this year.

 

In August, China announced the sale of 600 billion yuan in special treasury bonds at a rate of 4.3 percent to help set up a new state foreign-exchange investment agency.

 

China's legislature in June approved a ministry proposal to float the special government bonds to buy foreign-exchange reserves from the central bank for investment overseas.

 

The central bank is working to establish the China Investment Corp, which will take charge of the operations of the new sovereign investment fund to bolster returns on the nation's foreign reserves.

 

"In the short term, this batch of special bonds will not exert any direct influence over the market as the coupon rate is much lower than the market level," said Zhang Yidong, an analyst with the Industrial Securities Co.

 

"The bonds are being issued in exactly the same way as the first batch in August, which also did not stir the market too much."

 

According to the schedule, another 26.09 billion yuan of special treasury bonds will be sold by the end of this year.

 

Analysts with Bohai Investment Research Institute said the special bonds will become a new tool for the central bank to rein in excess liquidity.

 

"We believe the central bank will conduct repurchase deals with commercial banks. The Agricultural Bank benefits from being the intermediary," the institute said in a report yesterday.

 

China's foreign-exchange reserves rose to a record US$1.46 trillion in October and M2, the broadest measure of money supply, rose 18.47 percent in October from a year earlier to 39.42 trillion yuan, exceeding the central bank's annual target for a ninth straight month.

 

(Shanghai Daily December 6, 2007)