China will open more channels for foreign institutions to invest in its stock markets, a move aimed at supporting share prices and helping to counter capital outflows as the economy slows.

The Chinese securities regulator announced late on Friday that renminbi held offshore could be used to buy equities within China, a long-awaited reform that is critical to promoting more international use of the Chinese currency.

Local media also reported that the government was preparing to expand significantly the number of quotas that allow foreign institutions to invest in China’s closely guarded markets.

Foreign funds play a tiny role in China, accounting for just about 1 per cent of total market value, and the new openings are unlikely to change that, at least initially. But together they underline Beijing’s desire to liberalise capital controls gradually and to bring more institutional money into markets that often resemble casinos.

The reforms come as central bank money data for October showed the first evidence of capital outflows since 2007. Beijing has long been worried about hot money inflows, but companies and investors have moved in the opposite direction over the past two months as concerns have mounted about the country’s weakening property market.

While the amount of money that has exited China appears to be relatively small, it has placed downward pressure on the renminbi, led to tighter monetary conditions and hurt the stock market. The Shanghai Composite Index slumped 10 per cent over the past month, falling to its lowest level since early 2009.

Faced with a slowing economy, the Chinese government has cautiously shifted its policy into pro-growth mode. But analysts say that worries about debt levels and inflation will keep it from stimulating the economy as aggressively as it did in 2009. Premier Wen Jiabao has also emphasised that the government will keep property controls in place to rein in sky-high housing prices.

But the government has been increasingly assertive in trying to prop up stock prices. In October, a state-run investment vehicle bought a small number of shares in a widely trumpeted move.

Beijing is also looking to bring more domestic institutions into play as investors. Speaking at a forum last week, Guo Shuqing, the country’s chief securities regulator, said he wanted to harness the vast assets of local pension funds to help stabilise the often unruly markets.

China’s $80bn national pension fund invests about a third of its assets in stocks. Local pension funds are far bigger, with total assets of about $315bn, and they put very little of that into stocks.

Mr Guo’s proposal has already met opposition. China’s stock markets are notorious for insider trading, and critics said that until they are cleaned up, they would not make a safe home for pension assets.