China, the world's second-largest economy, is looking to increase investment and competition in its financial and banking sectors.
On Tuesday, it almost tripled the amount that international fund managers can invest in China to $80bn (£50bn).
At the same time, Premier Wen Jiabao told China National Radio that the monopoly of state-owned banks needed to be broken.
The shift may boost growth and create a more international Chinese currency.
Analysts have long said that opening up its financial markets was key to Beijing's efforts of pushing the yuan as an alternative to the US dollar as a global reserve currency.
The Qualified Foreign Institutional Investor (QFII) scheme is one of the main channels used by foreign firms to invest in Chinese financial markets.
The China Securities Regulatory Commission said raising the quota of the scheme was a step towards opening up the sector.
"The QFII programme enhances our experience of monitoring and regulating cross-board investment and capital flows," it said in a statement.
"It is a positive experiment to further open up the market and achieve the yuan convertibility under the capital account."
'Provide stability'
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“Start Quote
Frankly, our banks make profits far too easily. Why? Because a small number of major banks occupy a monopoly position, meaning one can only go to them for loans and capital”
End Quote Wen Jiabao Chinese Premier
The move comes amid volatility in the Chinese stock markets.
The Shanghai Stock Exchange Composite Index fell more than 20% last year. It has since seen a small revival, gaining almost 3% so far this year.
Analysts said the move to increase the quota for OFIIs was an attempt by the authorities to provide more stability to the markets.
"The longer term issue is about the structural health of China's stock markets," Stephen Joske of Australia Super, an institutional investor, told the BBC.
He explained that volatility in recent times had raised concerns about the impact of short-term and speculative investment in the markets.
"The hope is that allowing more foreign institutional investors, who are likely to have a more longer term approach, will provide stability to the markets."
'Far too easily'
In a further indication of Beijing's intent to loosen its grip on the tightly controlled financial sector, Premier Wen Jiabao hinted at allowing private investment in the country's banking sector.
The sector is dominated by the four big state-owned banks, including Industrial and Commercial Bank of China and Agricultural bank of China.
However, Mr Wen said that their monopoly was hurting businesses in the country, as they had few options to raise capital.
"Frankly, our banks make profits far too easily. Why? Because a small number of major banks occupy a monopoly position, meaning one can only go to them for loans and capital," he was quoted as saying by the China National Radio.
"That's why right now, as we're dealing with the issue of getting private capital into the finance sector, essentially, that means we have to break up their monopoly."
Future growth
The lack of easy availability of capital has often been cited as threat to growth of small and medium sized businesses in China.
There have been fears that some of these businesses may turn to unofficial sectors for capital, increasing their borrowing costs substantially.
ICBC branch in China State-owned lenders have enjoyed a monopoly in China's banking sector
Analysts said that ensuring the sustainability of these businesses was key to China's growth.
"This is a time in China's economic history where future growth, and future jobs, depend heavily on small and medium enterprises and the private sector," said William Overholt of Harvard University.
Mr Overholt said growth of these businesses had been hurt by moves by China's central bank in the past to try to limit the amount of lending in the country. He added that the entry of private players was likely to create a more level playing field by helping them get more access to fresh capital.
"When you control inflation by high reserve ratios, what the banks do is cut off everybody but their biggest clients," he said.
"The financial system is strangling them."
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