The new company will seek a higher return on its investment than the central bank has so far.

Moreover, it is hoped that the bond sale will further squeeze the excessive liquidity out of the market and ease the pressure on the central bank to some extent.

But the effect on liquidity will likely only be in the short term as the major driving forces behind excessive liquidity remain the booming trade surplus, new trader speculation, and foreign direct investment.

Statistics from the U.S. Department of Treasury show that China held $414 billion in U.S. bonds at the end of April, decreasing $5.8 billion compared with the amount at the end of March.

The Chinese Government is the second largest holder of U.S. bonds after Japan. It is the first time that China has reduced its U.S. bond holding since October 2005.

"I think it is enough for China to get higher returns from money generated by its trade surplus," said Sun Mingchun, an economist with Lehman Brothers. "China doesn't have to use its $1.2 trillion foreign reserve."

Banks Punished

The China Banking Regulatory Commission (CBRC) announced on June 19 to punish eight commercial lenders for negligence in overseeing loans that were illegally moved into the stock market by two state-owned companies.

Guo Tianyong, banking professor with the Central University of Finance and Economics, said the timing of the announcement, coming in the middle of the overheated Chinese stock market, is a warning that regulators will be closely monitoring bank loans given to companies that could be illegally used for speculation in the stock market.

"The banks' chief problem is their failure to do proper due diligence before making a loan, failure to be cautious in their assessment at the time of lending, and failure of supervision and control after making the loan," the CBRC announcement said.

The action resulted from an investigation the CBRC launched this year, finding that China Nuclear Engineering & Construction (Group) Corp. (CNEC) and China Shipping (Group) Co. had diverted bank loans into improper investments, according to CBRC website.

The eight banks cited by the CBRC are the Industrial & Commercial Bank of China, Bank of China, Bank of Communications, China Merchants Bank, China Citic Bank, Industrial Bank, Shenzhen Development Bank and the Bank of Beijing.

CBRC said it would punish 18 individuals and fine the eight banks, but didn't specify the penalty details. China's State-owned Assets Supervision and Administration Commission will enforce the penalties.

Tech Gala

The Fifth China (Fujian) Technology Projects Fair was held in Fuzhou, capital of southeast China's Fujian Province on June 18-20. It has evolved from a regional event helping local small and medium-sized enterprises find technologies to a national fair connecting projects with technological advances and talented innovators.

Besides a substantial growth of projects in the information industry and in opto-mechatronics, this year's event was highlighted by the rising number of projects within sectors such as new energy, energy-saving technology and environmental protection. The number of projects from these sectors reached 473, involving investments of 11.4 billion yuan, according to statistics from the organizing committee of the fair. "We're very strict in selecting projects. Those with high pollution or high energy consuming are all prohibited," said Zhang Zhinan, Director of the Fujian Provincial Development and Reform Commission, the organizer of the fair.

While serving as a channel for transferring research findings into real productivity, the fair is also a platform for human resource exchange. Li Xiaoyan, an official from the Xiamen Development and Reform Commission, said, "We're in need of foreign advanced experience. We come here to look for foreign experts." This year's session attracted not only Chinese researchers and academicians but also a lot of experts from Japan, South Korea and European countries. Piet Hein de Wit, Country Coordinator for China of the Netherlands Senior Experts Programme PUM, said he brought five experts to attend the fair.

Statistics show 4,757 projects were agreed upon at the fair, with total investments of 83.18 billion yuan, up 29.7 percent and 19.2 percent, respectively, compared with the fourth session. The number of contractual projects reached 2,840, involving investments of 56.93 billion yuan, rising 29.4 percent and 29 percent, respectively.