Chinese citizens have been allowed to invest directly in the overseas securities market on a trial basis, according to a circular released by the State Administration of Foreign Exchange (SAFE) on Monday.

According to the circular, the Binhai New Area of Tianjin will be the first pilot area for the trial program.

In the early stages of the pilot project, individuals will only be allowed to invest in securities traded on the Hong Kong securities market with self-owned or purchased foreign currency, said the circular.

Before the launching of the pilot project, Chinese citizens were able to invest in overseas stock markets through qualified domestic investment institutions (QDIIs). Direct individual investment had been banned.

The rapid and steady development of the Chinese economy, people's rising income, their growing demand for investment and China's ample forex capital has created a sound environment for the pilot project, said the state forex watchdog.

According to SAFE, the pilot project will help develop China's personal overseas investment business step by step and gather experience in hedging risks in the international market.

It is also an important move to deepen the reform of the forex management system and to expand channels for forex capital to flow overseas, it said.

The pilot project will result in more domestic capital flowing into the overseas market and relieve the pressure of China's huge forex reserves, said Tan Yaling, a researcher with the Bank of China.

China's forex reserve had reached 1.33 trillion U.S. dollars by the end of June.

A lack of multiple investment channels has swelled China's mainland stock market. Chinese share prices on the benchmark Shanghai Composite Index closed at a record high 4,904.85 points on Monday and accounts opened in the mainland stock market had exceeded 114 million by last Thursday.

China expanded its annual forex purchase quota for Chinese citizens from 20,000 U.S. dollars to 50,000 U.S. dollars from February 1, 2007. But this limit will not apply to individual investment in overseas securities markets, the SAFE said.