China will launch a trial scheme to allow yuan (Renminbi) funds raised offshore to be invested in its domestic capital market, in a widely expected move to help internationalize its currency, the official Xinhua News Agency reported Friday.

China’s securities regulator, the country’s central bank and its foreign exchange regulator jointly released guidelines Friday on the so-called Yuan (Renminbi) Qualified Foreign Institution Investor (QFII) trial scheme, Xinhua said.

According to the guidelines, the pilot project, which has an initial investment quota of CNY20 billion ($3.1 billion), will begin with Hong Kong-based subsidiaries of Chinese asset management companies and securities firms, according to Xinhua. The guidelines also stipulate that at least 80% of the yuan QFII funds must be invested in fixed-income products, while no more than 20% of such funds can be used for equities investments. 

That compares with Shanghai and Shenzhen’s combined market capitalization of 24 trillion yuan. “It’s part of the blueprint to internationalize its bond and stock markets,” said Ronald Wan, managing director of China Merchants Securities Hong Kong. “The quota will eventually be raised, albeit slowly.”

The Xinhua report did not give a timetable for the launch of the trial scheme. Earlier Friday, Caixin magazine reported, without citing sources, that China will launch the trial scheme from April 1.

Meanwhile, hopes were raised that more foreign investments could flow into mainland stock and bond markets under the conventional QFII scheme. Caixin website reported that the number of QFII licenses in the next two months will exceed the number of permits in the past two years. As of November, mainland authorities had granted 115 QFII licenses with a combined investment quota of US$21.14 billion

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