(Yicai) Aug. 20 -- China will sell CNY400 billion (USD56 billion) of special government bonds to pay notes that fall due at the end of the month, as part of an annual replacement process in place since CNY1.5 trillion (USD217 billion) was raised to fund the setup of sovereign wealth fund China Investment Corporation in 2007.

The Ministry of Finance will sell CNY300 billion of 10-year fixed-rate interest-bearing bonds and CNY100 billion of similar 15-year notes on Aug. 29, it said yesterday. Since the issuance is in the same amount as previously, it does not involve social investors and will not alter the ministry's existing assets and liabilities nor increase the fiscal deficit, the ministry added.

Beijing-based CIC, one of the world's biggest sovereign wealth funds, was funded by CNY1.35 trillion of special bonds sold to Agricultural Bank of China and CNY200 billion from other financial bodies and individual investors through a public subscription. That was used to buy foreign currencies from the People's Bank of China, which served as CIC’s initial capital.

The PBOC then bought back all of the special bonds issued to Agricultural Bank with the Chinese yuan it acquired from foreign currency sales. So, the central bank actually holds most of the debt.

Since 2017, the finance ministry has issued new special bonds each year to the institutions that subscribed to the initial CNY1.5 trillion. The notes maturing at the end of August are the first of the refinancing issuances to mature.

Editors: Tang Shihua, Kim Taylor