It will be the first time the Reserve Bank of Australia (RBA) will invest in sovereign bonds of an Asian country other than Japan.
The RBA has foreign currency reserves of A$38.2bn ($39.2bn; £25.7bn).
Earlier this month, the Australian dollar became the third currency to trade directly with the Chinese yuan.
“This decision to invest in China is an important one,” Philip Lowe, deputy governor of the RBA said in a speech to the Australian Chamber of Commerce in Shanghai.
“It reflects the broader economic relationship between China and Australia and our increasing financial ties.
“It provides greater diversification of our investments and will help with our understanding of the Chinese financial markets,” he added.
China has been slowly opening up its tightly controlled financial and capital markets, to try and spur a fresh wave of economic growth.
Last year, it raised the investment quota for Qualified Foreign Institutional Investors twice to give them greater access to its markets.
At the same time, it has been loosening its grip on its currency as part of its attempts to internationalise the yuan.
It has announced plans to set up a special business zone in the southern city of Shenzhen to experiment with the yuan’s convertibility.
Analysts have said that all these moves are a part of China’s push for a more global role for its currency.
Beijing has been trying to promote the yuan as an alternative to the US dollar’s status as global reserve currency