China's securities watchdog has decided to allow mainland fund management companies to set up branches, subsidiaries and representative offices in Hong Kong.

The China Securities Regulatory Commission said fund companies must seek permission first before establishing any such branches.

The new move is widely believed to help improve the management of domestic fund companies and the development of the qualified domestic institutional investors scheme, or QDII.

Bian Xiaoning, an analyst with Galaxy Securities, said stockmarkets in the mainland and Hong Kong should not be affected in the short term.

"We believe that the new policy will not affect much the A shares market as it will not divert any fund from it. No new channels are opened for fund flow from the A shares market to the Hong Kong stock market."

The mainland's A shares market is a Renminbi-denominated market, which allows mainlanders and selected foreign institutional investors to invest.

So far, regulators have granted QDII status to 19 fund companies, and eight of them had raised some 120 billion yuan or17 and a half billion U.S. dollars by the end of March.

Their investments have gone to 35 markets, including the United States, United Kingdom, France, Hong Kong and Japan.