SHANGHAI - China published rules on Friday to allow foreign investors in the Chinese interbank debt market to also buy exchange-traded bonds, as part of efforts to facilitate inbound investment.

Investment procedures will also be streamlined for overseas bond investors, China's central bank, foreign exchange regulator and securities watchdog said in a joint statement.

The rules, which takes effect on June 30, come after foreign investors cut their holdings of onshore yuan bonds for the third month in a row in April, as COVID-19 outbreaks hit China's economy.

The announcement is a key step in the further opening of China's bond market, the People's Bank of China (PBOC) said in a statement on its website.

"It will help diversify investors, improve bond market liquidity and stability, facilitate capital inflows, and improve balance of international payments," the PBOC said.

According to the rules, foreign institutional investors will be allowed to trade bonds both in China's interbank market and via stock exchanges.

In addition, foreign investors have the freedom to choose Chinese registration and settlement institutions, or custodian banks for relevant services.

As of the end of April, a total of 1,035 foreign institutions held 3.9 trillion yuan ($582 billion) worth of debt instruments in the world's second-biggest bond market, the PBOC said.

Chinese regulators will further facilitate inbound investment and improve competitiveness of China's financial markets, according to the statement.

(Reporting by Shanghai newsroom; Editing by David Goodman and Edmund Blair)