Shanghai is considering issuing 3 to 5 billion yuan ($451 to $752 million) in municipal bonds in its free trade zone (FTZ), with overseas investors being allowed to invest in the bonds via free trade accounts, Pudong Times reported on Aug 16.

Free trade accounts were launched by China's central bank in June 2014 specifically for the Shanghai FTZ. The account allows freer capital movement between the FTZ and offshore destinations.

Companies registered in the zone can use the account for financing, investment and other cross-border transactions. Firms in the zone can borrow offshore funds, transfer capital between subsidiaries in and outside of China and enjoy greater flexibility in managing foreign exchange.

The issuance of the municipal bonds is regarded as a way to promote the backflow of offshore yuan, in line with the zone's previous financial reform measures which called for developing more backflow channels for offshore yuan.

The increase of backflow channels will make outbound financial institutions willing to hold more Chinese currency, for instance, by the end of this July, overseas institutions held a record 321.8 billion yuan-denominated government bonds.