SHANGHAI (Reuters) - China will relax restrictions on foreign enterprises investing in its fledgling free trade zones (FTZs) in a bid to attract more overseas capital, the country’s cabinet said on Tuesday.

The government will temporarily replace an unwieldly approval mechanism with a registration system that will allow the establishment of foreign firms or joint ventures in the FTZs and facilitate major mergers and acquisitions involving foreign companies, the cabinet said in a statement on its website (www.gov.cn).

“The move is another step in China’s reforms to open up its domestic market and to support free trade zone development,” said Liao Qun, China chief economist at Citic Bank International in Hong Kong.

“As for the timing, it will help ease the pressure of RMB depreciation and capital outflows since the adjusted measures will encourage more foreign investment in China,” Liao said.

China has free trade zones in the municipalities of Shanghai and Tianjin, as well as the southern province of Guangdong and the southeastern province of Fujian.

The government would also temporarily scrap a requirement blocking foreign investors from taking controlling stakes in domestic steel mills, and also allow overseas firms to set up solely-owned steel producers in the FTZs, the statement said.

Previous rules stated that foreign steel firms choosing to invest in China would have to possess their own production technology, while non-steel firms had to demonstrate “strong funding power and high credibility” before investing.

Partly as a result of the ownership restrictions, China’s huge steel sector has attracted relatively little foreign investment. Dwindling demand growth, low profit margins and mounting losses have also made the sector less attractive.