China will allow qualified foreign institutional investors, or QFIIs, to invest in the country's stock-index futures, after its benchmark measure slumped this month.

The US Treasury Department announced the proposal in a statement yesterday at the end of the US-China Strategic & Economic Dialogue in Beijing. Futures, or agreements to buy or sell the CSI 300 Index at a preset value, began trading on the China Financial Futures Exchange in Shanghai on April 16, while margin trading and short selling was introduced March 31.

"This is fantastic news," Peter Alexander, Shanghai-based principal at Z-Ben Advisors, which provides research to fund management companies, said in a phone interview. "This shows China will continue to liberalize by allowing more foreign participation. This will also help the QFIIs by allowing them to hedge their positions."

The move will make more investment options available to foreign investors. The Shanghai Composite Index, which surged 80 percent last year, fell 20 percent from its November 23 high.

The measure lost 20 percent in 2010, Asia's worst performer, while the CSI 300, which tracks 300 of the largest companies on China's two equities exchanges, dropped 21 percent, as the central bank raised the amount funds banks must set aside as reserves three times this year.

China has set the total combined quota for QFII funds at $30 billion. The market capitalization is $2.7 trillion.