Bonds News
- China's top legislature mulls bond sale to buy forex
Date: 28-Jun-2007 Sources: (Xinhua Online)
BEIJING, June 27 (Xinhua) -- China's top legislature Wednesday began discussing a draft bill authorizing the Ministry of Finance to issue 1.55 trillion yuan of special treasury bonds that will be used to purchase 200 billion U.S. dollars of foreign exchange.
The 200 billion U.S. dollars will be entrusted to the nation's new foreign exchange investment company as operating capital.
The draft bill was submitted Wednesday to the ongoing session of the Standing Committee of the National People's Congress (NPC), China's top legislature.
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, the draft said. And the annual ceiling on treasury bond issuance for 2007 will have to be adjusted.
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 draft.
Minister of Finance Jin Renqing on Wednesday told lawmakers, 'The special treasury bond issuance will help drain the excessive liquidity in the market and improve macro-economic control.'
The special treasury bond will also be conducive to 'reducing the size of China's forex reserves' and improve the return on forex assets, Jin said. Statistics show that by the end of March 2007, China's forex reserves had reached 1.202 trillion US dollars, up 135.7 billion US dollars from the end of 2006.
Explaining the massive scale of the issue, Jin said China's forex reserves were likely to continue to rise, and the central bank would face more pressure in coping with excessive liquidity even after recent measures to withdraw currency from circulation.
'Without a sufficient scale, the intended role of draining liquidity may not be obvious,' Jin told lawmakers.
The special treasury bonds will help domestic enterprises do business abroad and enhance the national economic competitiveness, Jin promised.
To effectively use and manage the huge forex reserves and increase their return, the State Council has decided to establish the state foreign exchange investment company.
In May, the company, which was in an embryonic state, agreed to invest three billion US dollars in the US private equity firm the Blackstone Group.
The Financial and Economic Committee of the NPC supported the State Council bill in a separate report to lawmakers on Wednesday, but it urged the government to speed up the process of formally establishing the forex exchange investment company by issuing detailed management methods and improving its risk management and market operation mechanism.
'Such measures are necessary because the treasury bonds are huge in scale and incurring interest must be considered,' the NPC committee said.
'In face of the volatile international economic situations, the funds should be managed under tight supervision,' it said.
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