China MOF To Roll Over Special Government Bonds

     BEIJING (MNI) - The Ministry of Finance said Tuesday that it has decided to

roll over special government bonds held by the People's Bank of China totaling

CNY600 billion.

     The MOF will issue a total of CNY400 and CNY200 billion of seven-year and

10-year government treasuries with yields of 3.6% and 3.62%, respectively, to

target banks on Aug. 29, rolling over the same amount in special government

treasuries that will mature on the same day.

     The PBOC, according to Xu Zhong, the head of the PBOC's research bureau,

will buy the full amount of those government treasuries from the target banks,

to maintain "a constant fiscal debt amount, a constant PBOC balance sheet, a

constant balance sheet of relative financial institutions and constant liquidity

in the banking system," compared with the situation before the rollover.

     The MOF also said the PBOC will conduct open-market operations for those

target banks, indicating that "fiscal policy and monetary policy will be

coordinated to maintain the stability of financial markets during the rollover

process," according to Xu.

     The special government bonds were issued by the MOF in 2007 to buy

foreign-exchange reserves from the PBOC in an effort to provide capital for

sovereign investment fund China Investment Corporation, which is owned by the

MOF. The PBOC cannot directly buy treasuries from the MOF, so the PBOC bought

those treasuries on the secondary market from Agricultural Bank of China, which

purchased the treasuries from the MOF first.

--MNI Beijing Bureau; +86 10 85325998; email: he.wei@marketnews.com

--MNI Beijing Bureau; +86 (10) 8532-5998; email: vince.morkri@marketnews.com

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