China's legislature on Friday authorized the Ministry of Finance (MOF) to issue 1.55 trillion yuan of special treasury bonds to fund the planned foreign exchange investment company.

The legislature also approved the raising of the ceiling on treasury bond issues for 2007 to 5.34 trillion yuan.

The motion was adopted at the ongoing 28th session of the Standing Committee of the National People's Congress.

The bonds will be used to purchase 200 billion U.S. dollars for the national foreign exchange investment company as operating capital.

"The issue of the special treasury bonds should be regarded as a neutral measure," said an MOF official after the motion was adopted.

"The motion is to rein in excess liquidity," said the official, adding the influx of foreign capital in recent years had resulted in excess liquidity, bringing inflationary pressures.

The special treasury bonds will be issued in the form of negotiable book-entry T-bonds with a term of more than ten years. The coupon rate will be decided by the market, according to the motion.

At the same time, a "central finance forex management fund" will be established to examine the revenue and expenditure of the special treasury bonds and forex assets, said the motion.

Launching a forex investment company would decrease China's forex reserves while increasing its operating profits, said the official.

By the end of March, China's forex reserves had reached 1.2 trillion U.S. dollars, up 135.7 billion US dollars from the end of2006.

After adopting labor contract law and the amendment to the income tax law and approving a couple of motions and bills, the six-day session of the Standing Committee of the National People's Congress concluded on Friday.

It also approved the cabinet nomination of Chen Zhu, who has no party affiliation, as the country's new health minister.