China has set up a yuan-denominated fund to help Chinese companies invest overseas, the fund's backer said Friday, as the government encourages domestic firms to seek acquisitions abroad.

The fund was initially capitalised at 12 billion yuan ($1.9 billion), but will eventually grow to 50 billion yuan, Shanghai International Group said in a statement, calling it China's biggest ever fund of its kind.

Through loans and raising money from bond issues, the fund could eventually command a war chest of 150 billion yuan, it said.

Shanghai International Group, which is linked to the Shanghai government, declined to comment.

The fund was aimed at helping state, listed and private companies get financing for overseas investment. It also aimed to promote greater use of the domestic currency, the yuan, in cross-border transactions.

"The yuan-backed fund will help domestic companies go abroad in seeking more investment opportunities," China's central bank vice governor Liu Shiyu was quoted by the official Shanghai Daily newspaper as saying.

China last month repeated pledges to build Shanghai into its vision of a global financial centre by 2020 by increasing the use of the yuan in international business.

But analysts say China must permit free capital flows by taking steps to make the yuan fully convertible to achieve the cherished goal.

China is also keen for companies to "go out" and invest overseas, especially as weakness in developed economies presents more opportunities.

In one recent deal, privately-owned construction equipment maker Sany Heavy Industry and a Chinese private equity firm bought German engineering firm Putzmeister for 360 million euros ($470 million).

China's sovereign wealth fund, China Investment Corporation, has also bought stakes in foreign firms, including British utility company Thames Water in a deal announced in January.