"It is to guarantee the interest of buyers of preferred shares," said a senior manager at one of the four major State-owned commercial banks.

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Among other provisions, companies would be allowed to issue such shares in batches after winning regulatory approval for total quotas at one time, according to the CSRC statement.

Zhang said the CSRC will improve and perfect the preferred share mechanisms based on experience from the pilot.

Hong said the new move of preferred shares helps Chinese companies raise funds as economic growth slows and banks will benefit.

Listed commercial banks usually need to raise funds annually to replenish capital. Secondary market refinancing will dilute the common equity, so this is a new way for them to finish the task.

China will gain by building a multi-level capital market and contributing to market-based reform of interest rates, the senior manager at one of the four major State-owned commercial banks said.

He said his bank is following guidance to so it can take part in the preferred share pilot program.

Preferred shares pay fixed dividends and enjoy seniority over common stockholders in the event of bankruptcy. They typically do not trade on the open market, carry no voting rights and do not dilute net profits attributable to shareholders.

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