A pilot program that would allow small, non-listed companies to issue bonds to limited categories of investors has been submitted to the State Council for final approval, the China Securities Regulatory Commission said on Thursday.

The goal is to expand funding channels for cash-starved businesses and support industry.

The bonds may only be sold to a limited number of sophisticated investors, under a proposal made earlier by the Shanghai and Shenzhen stock exchanges.

The Securities Times said institutions, as well as individuals with at least 5 million yuan ($793,500) in total financial assets and more than two years of securities investment experience, may buy the bonds.

The newspaper also said that initially, property and financial companies wouldn't qualify to issue such bonds. That has not been confirmed by the CSRC.

The bonds will offer returns of up to three times the current benchmark debt interest rate of 6.56 percent, with maturities of at least one year, a CSRC official said earlier this month.

The exchanges' proposal does not specify requirements about the profitability record of issuers or issue amounts.

Previously, the CSRC said that initially, only institutional investors with high asset quality would be able to trade in such bonds, to be supervised "very prudently" by the commission.

"The plan that has been submitted looks more tolerant than expected," said an analyst with China Post Securities, who declined to be identified.

The bonds' higher return rates, compared with the 7 to 8 percent offered by corporate bonds, might lead fund managers to readjust their investment portfolios, even allowing for unexpected risks, he said.

Some commercial banks' financial products may also be based on this category of securities, said the analyst. "Defaults will certainly happen, as those high-risk bonds' ratings may be lower than BB."

The CSRC's move is expected to accelerate the development of China's bond market, and it will help to improve the country's over-the-counter market transaction, said economists.

A CSRC official said that pilot programs might start this year in selected provinces where many small and medium-sized companies have set up operations. "It won't be expanded into a nationwide project in the short term," he said.

According to the CSRC, small companies from six provinces and cities - including Beijing, Shanghai, Zhejiang and Guangdong - may have the chance to first issue such bonds.

Zhang Zhenyu, head of the Financial Office in Wenzhou, Zhejiang province, said that the city might have the chance to launch the pilot program as one of many reform measures, after being designated as the nation's "special financial zone."