China is likely to establish rules to allow domestic capital to invest overseas by the end of this year, Zhou Xiaochuan, governor of the People's Bank of China (PBOC), said yesterday.

"This matter is very hopeful," Wen Wei Po quoted Zhou as saying.

Zhou made the remarks on the sidelines of the ongoing session of the National People's Congress.

He was replying to media questions on whether regulations on the theme of qualified domestic institutional investors (QDII) could be issued this year.

China plans to eventually open its financial market. In a big move, the central government late last year issued regulations to allow qualified foreign institutional investors (QFII) to enter the mainland stock exchanges.

Speculation on the timetable of QDII - most saying it could be adopted within 2003 - have heated up after the launch of QFII.

However, "this matter is not up to me alone, but will require co-ordination between several departments," said Zhou.

Under China's currency controls, the QDII theme could provide more outlets for the voluminous amount of the country's foreign exchange reserve, standing at US$286.4 billion by the end of 2002.

Hong Kong would benefit from the move because the city is part of China and has a long and close economic relation with the mainland, experts said.

But the launch of the QDII theme would take longer because of the involvement of a new governmental body - China Banking Regulatory Commission (CBRC). The plan of setting up the banking watchdog was approved yesterday by the National People's Congress.

The establishment of CBRC will not weaken the power of the central power, Zhou said.

The commission will help the government enhance the supervision of commercial banks and the control over the financial industry, Zhou said.

Meanwhile, PBOC will be in charge of the country's monetary policy and have stronger capacity in macro-adjustment, he said.

The central bank and CBRC will set up a close co-ordination mechanism between them, Zhou added.

Meanwhile, Zhou said the central government would "have no problem" in allowing renminbi to enter Taiwan.

"It (to allow renminbi to circulate in Taiwan) is mainly a matter for the Taiwan side and the two sides can open dialogue on it," he said.