China is to issue 200 billion yuan (US$26.7 billion) of special treasury bonds as the second tranche of a planned 1.55 trillion yuan basket to finance the country's new foreign exchange investment firm.

The bonds would be sold to the public, with outstanding terms of more than 10 years, the Ministry of Finance announced on Monday.

The first 100 billion yuan bonds will be issued later this month in three batches, while sale of the second half is scheduled for the fourth quarter.

The announcement came two weeks after the ministry issued 600 billion yuan of such bonds targeting the country's commercial banks with an annual interest rate of 4.3 percent.

"The bond sale will help ease liquidity, prevent the economy from overheating and strengthen the macro-control policy," the ministry said.

"Theoretically, a 200-billion-yuan bond sale to the public could have the same effect on excess liquidity as an 0.5-percentage-point hike in bank reserve requirements," said Wang Guogang, a finance expert at the Chinese Academy of Social Sciences.

Issuing in batches and to different buyers would ensure the stability of the financial market and reduce the bond investment risks, Wang said.

In June, China's top legislature approved the issuance of 1.55 trillion yuan of special treasury bonds by the Ministry of Finance to buy US$200 billion forex reserve for a state investment firm, which will make better use of the country's huge forex reserves.

China's forex reserves had reached US$1.33 trillion by the end of June.

(Xinhua News Agency September 11, 2007)