Chinese studies will get an extra Pounds 5 million over the next five years to aid teaching and research.
The Higher Education Funding Council for England set the cash aside after the Foreign and Commonwealth Office expressed concern at the state of Chinese studies.
A working group reviewed provision, taking into account the needs of diplomacy and commerce, and recommended that the subject be strengthened.
Bonnie McDougall of the University of Edinburgh said: "Britain has not been as engaged in Chinese studies as it might be. By encouraging Chinese to be studied in universities, Britain can gain more understanding and expertise in Chinese and the country can play a larger role."
Seven universities offer Chinese studies but HEFCE envisages funding only six departments. It is now inviting bids and wants to encourage bids from consortia of two or more institutions.
The money will be allocated according to strategic departmental plans and monitored against student numbers. HEFCE wants an extra 100 postgraduate students in each department.
Each participating department will get an annual grant of up to Pounds 150,000 - enough to pay for three permanent lecturers. There will also be a national fund of up to Pounds 400,000 for library acquisitions. Both funding arrangements will be reviewed after five years.