By Xin Zhiming and Lillian Liu (China Daily)
Updated: 2007-09-06 07:46

Mainland residents will, for the first time, be allowed to directly invest in overseas securities under a pilot program to be launched in the northern port city of Tianjin.

Investors can use their foreign exchange or purchase foreign currency to open an account with Bank of China's Tianjin branch or Bank of China International Securities in Hong Kong, the State Administration of Foreign Exchange (SAFE) announced on August 20.

The investment amount will not be subject to the annual limit of $50,000 for an individual to purchase foreign exchange, as per earlier rules.

"This is part of the process of China's capital account reform," said Chen Jijun, analyst with Beijing-based CITIC Securities. "It will help ease liquidity pressure in the country as foreign exchange reserves pile up rapidly."

Stephen Green, senior economist with Standard Chartered Bank (China), described it as "an historic move in China's capital account opening".

SAFE said in the statement: "This is an important measure to widen the channels for foreign exchange outflows and promote basic balance in international payments."

Individuals were earlier allowed to invest overseas indirectly through banks, brokerages, insurers and fund managers through the qualified domestic institutional investor (QDII) scheme.

"Now, the new program will provide an alternative for domestic individuals eyeing overseas markets," Chen said.

Analysts said the Hong Kong market will be the first to benefit as many mainlanders are likely to buy stocks of mainland companies listed there.

"It's great news for the Hong Kong stock market," said Paul Lee, banking and insurance analyst at Hong Kong-based Taifook Securities. "The policy will surely be welcomed by Hong Kong investors because mainland investors' participation will help boost confidence as well as market sentiment. After the recent market turmoil, this policy is timely support for Hong Kong."