Vnesheconombank, the Russian state development bank locked out of Western capital markets by US and European Union sanctions, is in talks to sell yuan bonds on the Chinese mainland amid preparations for President Vladimir Putin's state visit this week.

Negotiations on the local placement are in an "advanced stage", Peter Fradkov, first deputy chairman at VEB, as the bank is also known, said in an interview last week. "It's hard to enter the Chinese market, but it is possible."

China set new rules in July making it easier for big international investors to access its $5.7 trillion interbank bond market. Before sanctions closed some international markets, Russian banks issued so-called dim sum notes, which are sold outside China, in a bid to tap fresh sources of cash.

Regulatory issues over the bond sale remain, Fradkov said. He did not indicate its size or a possible time frame for the offering.

VEB has cooperated with Russia's biggest trading partner since 2005 and has borrowed $10.7 billion in loans from China in the past decade, Fradkov said. Since the sanctions were imposed, VEB additionally agreed on an $8 billion loan from the China Development Bank to fund projects in the Far East as well as a 4 billion yuan ($625 million) credit line from the Export-Import Bank of China.

The potential deal comes amid declining prices for crude, Russia's main export earner, and market turbulence as investors speculate China's economy is stumbling.