Enthusiastic Response for T-bonds in Beijing

Residents in the capital city, Beijing, started buying some of the 60 billion yuan (US$7.25 billion) worth of treasury bonds issued across the country on Monday with apparent enthusiasm.

"We are almost short of hands," said Zhang Lin, staff of the Beixin'an savings house under the Industrial and Commercial Bank of China.

Zhang's savings house issued 11 million yuan (US$1.3 million) worth of the T-bonds yesterday.

"The tax-free T-bonds with relatively higher interest are extraordinarily attractive to wage earners and pensioners who have limited channels to invest," Zhang said.

The income tax law, which was amended last year, allows the government to tax bank deposit interest.

China imposed a 20 per cent tax on proceeds from bank savings last November.

However, the interest on T-bonds is exempt from income tax.

The 60 billion yuan (US$7.25 billion) worth of T-bonds includes 12 billion yuan (US$1.45 billion) in two-year term carrying an annual interest rate of 2.55 per cent, 30 billion yuan (US$3.6 billion) in three-year term with an interest rate of 2.89 per cent and 18 billion yuan (US$2.2 billion) in 5-year term with an interest rate of 3.14 per cent.

In contrast, the interest rates run at 2.43, 2.7 and 2.88 for bank deposits of two, three and five years, respectively.

On March 1, China issued 50 billion yuan (US$5.75 billion) worth of treasury bonds to private investors. More than 45 billion yuan (US$5.17 billion) worth of the T-bonds, or 90 per cent of the total, were sold within two weeks.

Buyers of the T-bonds have to use their real names to comply with the real name system China introduced in bank savings on April 1 this year, a step aimed to promote the development of the country's banking industry and eradicate corruption.

Half of the 60 billion yuan (US$7.25 billion) proceeds from the bond issues will be incorporated into the central government budget while the rest will go to local governments, sources from the National People's Congress said.



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