The industrial port city of Tianjin has long been a conduit for goods to distant lands. Now the Chinese government is grooming it to play the same role for money.

In a move that is part of a campaign to turn the northeastern city into the country’s second financial center after Shanghai and its main venue for overseas transactions, the government on Monday named Tianjin as the location for a ground-breaking experiment to allow individual Chinese to invest directly in the Hong Kong stock market.

The new outward investment scheme, the biggest relaxation yet in the country’s rigid foreign exchange control regime, is intended to provide a release valve for some of the money that is piling up in China due to its trade surplus and robust inward investment, which is stoking inflation and putting upward pressure on the yuan.

The country’s cabinet, the State Council last year announced that it would develop the city of 12 million people as a special economic zone, similar to Shenzhen and Shanghai’s Pudong area, with the aim of using it as a principal testing ground for “important reforms” related to financial affairs and financial liberalization.

Whereas Shanghai focuses on domestic capital markets, the idea is to turn Tianjin into a financial center for direct finance, venture capital and foreign exchange.

With the intent of channeling outward investment through one point so it can be better controlled, Beijing said Monday it would let citizens open brokerage accounts with a Tianjin branch of Bank of China, China’s top foreign exchange bank, to play the Hong Kong stock market. The accounts will be exempt from current rules that restrict Chinese to $50,000 in foreign exchange transactions per year.

In the future, Bank of China branches across the country will be able to funnel money bound for Hong Kong through the branch in Tianjin, which is China’s third-largest city, 80 miles from Beijing.

Tianjin has also been chosen as the venue for a future experiment with a freely convertible yuan.

The Hong Kong initiative prompted Deutsche Bank to double its forecast of total fund flows from China to the Hong Kong stock market to $40 billion in the year through June 2008. But the restriction solely to Hong Kong could make the liberalization less attractive to Chinese retail investors, analysts at Morgan Stanley suggested.

Nonetheless, it promises to provide a boost to the effort to turn Tianjin into the financial center of the North, balancing Shanghai’s role as a window for the economy in the South.

It is in part an attempt to return the city to its former glory. Tianjin developed into an important international trading city in the 19 ^th century, with concessions taken by the British, French, Germans, Russians and Japanese. It was Republican China's second-largest financial, industrial and trade center after Shanghai.

The current mayor of Tianjin is well-suited to the task: former central bank governor Dai Xianglong. The 63-year-old Dai was credited with steering China through many of its most critical moments during his tenure at the People’s Bank of China, including China’s safe sailing through the 1997-98 regional financial crisis and its subsequent accession into the World Trade Organization.

Much like the Pudong financial district in Shanghai, Tianjin also has its own showcase neighborhood: the Tianjin Binhai New Area, a 2,270-square-km stretch of land along the coast, complete with a free trade zone, a financial street and the nation’s largest bonded port area.