CHINA is considering allowing foreign firms to raise capital by selling shares in the Shanghai Free Trade Zone, according to sources with direct knowledge of policy making for the zone.

Beijing maintains a tight grip on its stock markets and doesn't allow foreign companies to issue shares, but authorities are now working on a proposal that would enable qualified foreign companies to sell shares.

The proposed over-the-counter market, is likely to serve as a test for the Shanghai Stock Exchange's international board, which would allow foreign companies to sell shares via initial public offerings ahead of listings in China.

The Shanghai Equity Exchange, of which Shanghai Stock Exchange owns 29 per cent, is considering developing a platform that would enable foreign companies registered in the free-trade zone to sell shares, said one source.

The State Council said last month that it would allow a trial of a fully convertible yuan capital account in the free-trade zone, sparking hopes for an easing of controls that bar foreign companies from raising capital through IPOs.

If China allows full convertibility of the Chinese currency in the free-trade zone, it would enable foreign and domestic firms registered in the zone to raise funds via private share placements as well as derivative trading via the planned share-sale platform, said one of the people familiar with the situation.

However, one of the persons said China needs to "draw up the structure of shareholders of the platform, the amount of registered capital of the platform, and rules governing the operation of the marketplace" before foreign companies can sell shares via the platform.