State forex firm begins trade in September

PUBLISHED : Saturday, 07 July, 2007, 12:00am
UPDATED : Saturday, 07 July, 2007, 12:00am

The country's state foreign reserves investment company is expected to make its public debut in September under the formal name of China Investment, investing mostly in overseas businesses and financial markets, mainland media reported yesterday.

The countdown to the company's establishment accelerated last week after the Standing Committee of the National People's Congress authorised the Ministry of Finance to issue 1.55 trillion yuan in special government bonds to help capitalise the investment body.

The China Securities Journal quoted an unnamed source as saying the investment body was expected to start operations in September when money from the sales of special bonds was formally injected into the company.

It said the special bonds may be issued in three or four phases through the central bank, but the process should be finished by March to jump-start the state investment company's overseas operations.

The newspaper quoted analysts as saying the central bank may opt to sell special bonds to commercial banks to mop up their excessive funds for lending, as about 1.5 trillion yuan of bank bills would expire by the year's end.

The tempo of the bond issues would match the bank bills' expiration dates, analysts suggested, adding that the special bonds were not expected to have much impact on the market's liquidity.

The mainland, with US$1.25 trillion in foreign reserves - the most in the world - has been eager to invest a portion of its money in higher-return assets to avoid losses caused by the weaker US dollar.

Asian Development Bank economist Zhuang Jian said the central government had every reason to move as fast as it could because of the yuan's consistent appreciation. 'If the trend is irreversible, holding foreign reserves longer means nothing but losing more money,' Mr Zhuang said.

Sources quoted by Xinhua said the special bonds could be issued to a commercial bank, which could immediately sell them to the central bank.

Capital injection

Special bonds will be issued to help capitalise the investment body

Amount of bonds the Ministry of Finance is authorised to issue for the fund-raising exercise 1.55 tr yuan