China's securities regulator will begin a trial programme that for the first time allows local fund houses to raise money offshore for investment in the domestic financial market, two sources said.

At least 80 percent of the money raised will have to be invested in the domestic bond market, said the two sources who are familiar with the matter but who are not authorised to publicly disclose the details.

The move is based on the overall financial trend of the yuan increasingly becoming more international, one of the sources said on Monday. The banks are already moving forward in this aspect and it's time for brokerages and securities firms to follow suit.

Mini-QFII takes after the 8-year-old QFII programme, which allows foreign fund managers to invest in Chinese stocks and bonds on behalf of foreign investors using money raised overseas.

Frances Cheung, strategist at Credit Agricole in Hong Kong, said the presence of foreign investors would help increase liquidity in the bond market.

On the one hand there is concern about equity market bubbles, and on the other it is always good to have more foreign participants in the bond market because it can help boost secondary market liquidity with more trade ideas, she said.

Speaking at a financial forum in Hong Kong on Monday, Shang Fulin, chairman of the China Securities Regulatory Commission (CSRC), said China would continue to open its monetary and financial markets.

For renminbi assets, we are going to open the mainland market up more for Hong Kong enterprises, collaborate more with the Hong Kong Exchange and work out better settlement regulations and arrangements, Shang told the forum.

Chinese brokerages with international arms such as Guotai Junan are expected to participate in the mini-QFII programme.

Most of the money will be allowed to invest in the bond markets, so as to ensure stable development of the trial programme, one of the sources said.

China has been trying to make its yuan currency more international by establishing Hong Kong as a offshore yuan centre.

It will also trying to come up with new ways to use the yuan beyond current options, which are now largely limited to depositing money into offshore yuan accounts and buying yuan-denominated bonds issued outside China.

Shang, said the CSRC would push closer cooperation and increase the scope of development with Hong Kong. We will also arrange steps for the exchange traded fund (ETF) mechanism and support the development in Hong Kong of renminbi bonds, he said .

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