China began to issue 600 billion yuan (US$67.79 billion) of bonds on Wednesday in the first tranche of 1.55 trillion yuan basket of special treasury bonds.

The China Securities Journal quoted authoritative sources as saying that the annual interest rate of the bonds would be around 4.3 percent, basically matching the market rate for long-term debt.

The report said the outstanding terms of the bonds would be ten years and 15 years.

Market observers held that the interest rate for the 35 billion yuan of central bank bills issued on Tuesday was fairly high at 3.3165 percent, raising the cost for the central bank to call back excessive liquidity, and this month was a peak period for maturing central bank bills.

They said the central bank very likely would replace maturing bills with the newly issued bonds, which would have little impact on market liquidity.

The government plans to launch a state forex investment company to make better use of the country's huge foreign exchange reserve. The forex investment company, still in preparation, made its first investment in non-voting shares, valued at US$3 billion, in the US private equity firm, the Blackstone Group.

At the end of June, China's top legislature had approved the issuance of 1.55 trillion yuan of special treasury bonds by the Ministry of Finance to buy US$200 billion forex reserve to finance the state forex reserve company.

A spokesman for the Ministry of Finance said the issuance of the bonds would not directly affect money supply in the market.

(Xinhua News Agency August 29 2007)