The People's Bank of China (PBC), the central bank, is planning to ease restrictions now in place on foreign central banks and financial institutions trading in China's interbank bond market, sources with direct knowledge of the situation told Reuters.

The move, if implemented, would mark another incremental opening of China's capital markets, following an announcement on April 10 that China will allow cross-border investment between the Hong Kong and mainland stock exchanges.

The sources cited a recent meeting between the PBC and senior banking executives in Beijing, but did not give further details on how the rules would be relaxed or any contemplated timeline for implementation.

Foreign central banks and financial institutions are already allowed to participate in the interbank market through the Qualified Foreign Institutional Investor (QFII) program, which controls foreign access to Chinese financial assets including stocks and bonds through a quota system.

Foreign central banks with currency swap agreements with the PBC, as well as commercial banks approved to conduct offshore yuan clearing, can also apply for the interbank bond market quota through separate channels.

Offshore institutions owned about 191 billion yuan ($30.70 billion) in Chinese interbank bonds at the end of March, according to Reuters analysis of figures published by the China Central Depository Trust and Clearing Co, China's main State-backed bond clearing house. That equals less than 1 percent of total interbank bonds outstanding.

Sources also said the PBC is planning on tightening supervision of the bond market.

Reuters