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BEIJING, June 20 (Reuters) - The Ministry of Finance will issue medium and long-term bonds to buy as much as $200 billion in foreign exchange from the central bank to fund China's embryonic state investment agency, a leading government researcher said on Wednesday.
Li Yang, an economist with the Chinese Academy of Social Sciences and an adviser to the investment agency, said the body could eventually have $400 billion in assets under management as it accumulates new inflows of foreign currency.

The China Business News said the agency might be named the China State Investment Company and could be up and running as early as September.

Citing unidentified sources, the paper said the bonds to acquire foreign exchange from the central bank would be issued in several batches. It, too, put the planned volume at $200 billion.

The government said on Monday that China's rubber-stamp parliament would review next week proposals to issue special treasury bonds drawn up by the State Council, or cabinet.

It gave no details of the volume or tenor. ADVERTISEMENT



The foreign exchange investment agency will be run as a business entity to seek maximum returns from part of China's $1.2 trillion in foreign exchange reserves, Li told a forum.

Li, a former member of the central bank's monetary policy committee, said the vehicle was unlikely to dump dollars.

"Many Americans are worrying that China will soon reduce its dollar holdings, but that is unlikely to happen," Li said, echoing comments made by Chinese Premier Wen Jiabao in March.

Li said issuing long-term bonds would help the central bank to manage liquidity flooding into China's banking system, because banks will hold the long-term special treasury bonds in place of part of their short-term central bank bill holdings.