Mainland banks may be allowed to buy yuan derivatives in Hong Kong under the so-called qualified domestic institutional investor (QDII) program, said Li Fuan, a department director at the China Banking Regulatory Commission. The watchdog hasn't decided when the changes will take place, he said in a phone interview with Bloomberg News.

China mainland's banks and fund managers have been awarded US$13.4 billion in quotas to invest outside the mainland. The government is allowing financial institutions, companies and citizens to put more money abroad to slow growth in its US$1 trillion of foreign-exchange reserves.

"Expanding the QDII program's scope will help increase returns made by Chinese mainland banks on their overseas investments and also give mainland investors more wealth management options," Li said.

Bank of China Ltd, the mainland's second-largest, last week closed its 578 million yuan (US$74 million) overseas investment fund as gains in the yuan crimped returns. At the end of November, banks had sold less than three percent of their quota for QDII funds, which are limited to investments in bonds, money-market products and fixed-income derivatives.

"At the moment, it isn't very attractive because QDII products are all fixed-income products," Stephen Green, senior economist at Standard Chartered Bank in Shanghai, said earlier this week.

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