China will publish rules as early as next month to allow offshore yuan to be invested in the mainland's capital markets under a new scheme, the Shanghai Securities News reported on Friday, citing people close to the securities regulator.

 

The so-called Renminbi Qualified Foreign Institutional Investor (RQFII) scheme, also called mini-QFII, was one of a series of measures announced last week by China's Vice Premier Li Keqiang during his trip to Hong Kong.

Under the scheme, modelled after the larger Qualified Foreign Institutional Investor (QFII) programme, foreign investors will be allowed to buy mainland stocks and bonds up to an initial quota of 20 billion yuan ($3.1 billion), as Beijing promotes the international use of the Chinese currency.

The China Securities Regulatory Commission is likely to select qualified investors from the Hong Kong subsidiaries of Chinese brokerages and fund houses, while foreign brokerages and Hong Kong units of Chinese banks will be barred from participation initially, the newspaper said, citing the sources who were not identified.

So far, 20 Chinese brokerages, nine Chinese fund companies and nine mainland banks have set up subsidiaries in Hong Kong, according to the article.

China has been encouraging the use of the yuan in cross-border trade, and hopes to build Hong Kong into an offshore yuan center. But foreign holders of yuan can only park the money at banks or buy a limited number of yuan-denominated bonds in Hong Kong as there's a shortage of investment channels for the currency overseas.

($1 = 6.390 Chinese Yuan)