China will allow qualified overseas investors to trade government bond futures contracts, as policymakers step up the opening up of the nation’s capital markets to boost foreign participation.

Foreign traders, approved under the qualified foreign institutional investor (QFII) programme by the financial regulators, could buy and sell government-bond futures starting on Friday, the China Securities Regulatory Commission (CSRC) said in a statement on its website. The trading could only be carried out for hedging purposes, it said.

“The move is intended to widen the investment scope for QFIIs and enrich their rate-risk management tools,” the CSRC said. “It will also boost the appeal of yuan-denominated bonds, stabilise foreign institutions’ investment behaviour and promote the high-quality development of the bond spot and futures markets.”

The loosening of restrictions for foreign investors to trade on China’s financial derivative markets comes as demand for yuan-linked assets has jumped after the start of the US-Iran war.

Global investors have been seeking refuge in Chinese assets as the country’s economy is relatively shielded from the oil shock, thanks to its green energy push and vast oil reserves. The yuan has strengthened nearly 0.7 per cent against the US dollar – the only Asian currency to appreciate – since the Middle East conflict began.

China’s bond market is capitalised at more than 200 trillion yuan (US$29.3 trillion), making it the world’s second largest after the US. Foreign investors held 3.2 trillion yuan of Chinese bonds at the end of March, accounting for 1.6 per cent of the total.