China's Ministry of Finance (MOF) will issue 200 billion national bonds out of its 1,550 billion special bonds to the general public, reported China Business News on August 28.

According to the report, the issuance will begin after MOF distributes 600-billion special national bonds to the Agricultural Bank of China, the weakest among China's four state-owned banks, on Wednesday. This transaction, it was reported by Caijing, is part of the MOF's planned flow of funds to the People's Bank of China. The funds are needed by the as-yet-unnamed national forex investment company, being set up to oversee China's soaring forex reserves. With laws preventing the direct flow of the funds from the MOF to the People's Bank, the Agricultural Bank was selected as the middle man through which to conduct the transaction, due to its lack of a board of directors which might hinder the process, reported Caijing.

MOF planned to purchase US$200 billion in foreign exchange currency by selling 1,550 billion special national bonds. However, the ministry partially changed tack and decided to issue 200 billion bonds to the public.

Industrial insiders believe MOF will put out the public bonds in a further bid to soak up excessive liquidity in China's over-heating financial market. China's A-share market bounced up to 5,000 points last week, soundly trouncing expert estimates that predicted this level would be reached at year-end.

(China.org.cn by Wu Jin and Chris Dalby, August 28, 2007)