China plans to lower its barrier to entry for foreigners to buy yuan-denominated securities under its qualified foreign institutional investor (QFII) scheme, State press reported.

China now wants to allow small and medium-sized foreign institutional investors to enter the domestic stock market and new regulations are expected at the end of the year, the official Economic Observer reported.

By doing so China hopes to pull in more overseas funds into its domestic stock markets.

QFII investments are limited at a minimum of US$50 million and cannot exceed US$800 million worth of purchases in yuan-denominated securities. The highly restrictive measures further do not allow foreign investors to open more than one account and only permit up to 10 percent of A shares in a listed company to be held by them.

So far the rules have kept out all but the largest international banking firms, with 18 of them being granted QFII licenses since the first bank won approval in May last year.

Total investment by QFIIs currently stands at a paltry US$1.95 billion, a fraction of the US$500 billion capitalized in China's A-share market, the report said.

China has said it welcomes fund management companies, pension funds and insurance asset management companies to apply for QFII licenses to diversify the field.

Editor: Olivia