The Ministry of Finance (MOF) is planning to issue yuan-denominated bonds to raise funds that will be used to "buy out"
as much as $200 billion from the country's foreign reserve pool.
To take funds out of the foreign exchange reserves the government must pay the equivalent amount in yuan to balance the books.
At the current exchange rate, the total amount of yuan bonds to be issued by the MOF will be more than 1.5 trillion yuan. The ministry plans to sell the bonds to commercial banks, according to China Business News, a leading business newspaper based in Shanghai.
The $200 billion "bought out" from the foreign exchange reserves will then be injected into a new company to be set up this year to handle overseas investment with foreign reserves.
The new company, tentatively named National Foreign Exchange Investment Company, will be controlled by the State Council, China's cabinet. It will spend funds from the foreign reserves on mergers and acquisitions of overseas businesses, including foreign financial institutions. It will also target overseas energy assets and will likely acquire equities in the domestic markets, or even lend money to help finance domestic research and development projects.
Informed sources say that Lou Jiwei, currently vice minister of finance, will be appointed as board chairman of the National Foreign Exchange Investment Company.
The new company will be a ministry-level body and as such its creation needs to be rubber-stamped by the National People's Congress (NPC), China's parliament. According to Chinese law, bond issuance by the MOF also needs the NPC's approval. Therefore, both the establishment of the investment arm and the issuance of bonds are expected to be on the agenda of the NPC's annual session, which begins next month.
