China and Malaysia signed a memorandum of understanding to allow Chinese banks to invest in Malaysian stocks, bonds and mutual funds, sources reported.

Securities Commission Malaysia Chairman Zarinah Anwar and Liu Mingkang, chairman of the China Banking Regulatory Commission, signed letters of exchange to formalize the recognition.

The Chinese government has signed similar pacts under its Qualified Domestic Institutional Investor scheme with countries and regions including the U.S., Britain, Japan, Singapore and Hong Kong.

China launched the QDII program in 2006 with effort to widen the channels for domestic institutions such as banks, insurers, fund management enterprises and trust companies to invest their customers' money in the overseas markets.