China's Ministry of Railways is to issue at least 16 billion yuan (US$2 billion) in railway construction bonds to raise funds for network expansion projects.

The size of the issue might increase to 20 billion yuan in case of over subscription, says the prospectus carried in Thursday's China Securities Journal.

The maturities of the bonds are seven, 10 and 20 years, carrying annual interest rates of between 4 and 4.25 percent.

Projects to be financed by the bonds include a high-speed railway linking Beijing and its nearest port, Tianjin, a passenger-only line between Zhengzhou, capital of central China's Henan Province, and Xi'an, a major tourist center in neighboring Shaanxi Province.

The bonds are being underwritten by CITIC Securities Limited.

Under China's 11th five-year plan (2006-2010), the rail network is to be extended by 17,000 kilometers at an estimated cost of 1.25 trillion yuan.

As the ministry's monopoly over railway operation bars any meaningful participation of private investors in the sector, much of the funding is to come from bank loans and bonds.

In September, the ministry signed an agreement with the China Development Bank, a state-owned policy bank, for a loan of 250 billion yuan over the next five years.

(Xinhua News Agency October 13, 2006)