The funds will be used to build railways, buy locomotives and improve the ministry's liquidity, according to a note on the website of the China Central Depository and Clearing Co., Ltd. (CCDC), adding the 90-day paper will carry a coupon rate to be set during bidding in the tender on the inter-bank bond market.

China Development Bank and the China Construction Bank were named as lead underwriters.

The issue will be the fourth batch of its kind by the ministry this year, which has been investing heavily in recent years to fund China's expanding rail network, part of China's ambitious five-year investment plan, Xinhua said.

A crash last month on the country's high-speed rail line killed at least 40 people and injured nearly 200, spurring rare expressions of public outrage and allegations that China was sacrificing safety in its rush to develop.

Analysts and economists have been watching for signs that Beijing's five-year railway investment plan of 2.8 trillion yuan might be scaled back, affecting confidence in the sector.

In July, the ministry issued 20 billion yuan of one-year commercial paper with a coupon rate of 5.18 percent, but only 18.73 billion yuan of the total was bought.

Xinhua cited analysts as saying it has become more difficult for the ministry to borrow money because of inadequate market liquidity and concerns over the ministry's debt burden.

Separately on Sunday, the ministry said it faces severe challenges in meeting its full-year passenger target this year.

In a statement, the ministry said it transported 1.095 billion passengers during the first seven months of this year, up 12.2 percent from a year earlier.

In January it had said it aimed to carry 1.9 billion passengers in 2011, up 13 percent from a year earlier.

Copyright Reuters, 2011