Foreign central banks, financial institutions and sovereign wealth funds can buy or sell bonds, bond forwards, interest rate swaps and "other transactions permitted by the PBC", the People's Bank of China (PBC) said.
Investors should "act as long-term investors" and can conduct trading "based on reasonable needs for preserving or increasing the value of their assets", the PBC said.
The PBC will monitor and regulate any trading behaviour, it said.
The PBC or other inter-bank market settlement agents will manage trading on behalf of investors, and may open special depository accounts in RMB currency to do so, the PBC said.
These agents will also assist with filing with the PBC Shanghai head office, with opening bond accounts and trade accounts, and with reporting information about investments to the PBC, it said.
Shanghai-based Yan Geng of Pinsent Masons, the law firm behind Out-Law.com, said: "The adoption of a filing administration system instead of regulatory approval, freedom to decide how much to invest, and expanded transaction scope are three key changes introduced by the PBC."
China announced in May that it would allow more foreign investment in its domestic bond market, giving investment approval to an additional 32 foreign firms.