The amount of money a resident in Wenzhou, a city in Zhejiang province, can invest abroad will be capped at $200 million a year, the Wenzhou Foreign Trade and Economic Cooperation Bureau said on its website.

Residents will be allowed to invest a maximum of $3 million in a single project and, if they are part of a group of investors, the combined total can be no more than $10 million, said the statement issued last week.

Wenzhou gained nationwide fame in the 1980s for its free-wheeling entrepreneurs and factories specialising in everything from cigarette lighters to badges.

The pilot programme marks the latest step by China to loosen its tight grip on the currency, which has been blamed for fuelling the amount of money washing around the world's second-largest economy and fanning inflationary pressures.

The yuan is not convertible under the capital account which includes foreign direct investment and securities investments.

China's central bank tightly controls the yuan exchange rate by purchasing foreign currency entering the country through foreign direct investment, export payments or speculators.

Currencies bought by the People's Bank of China add to the country's already world-beating foreign exchange reserves while the yuan given in return adds to the flood of money entering the economy.

To alleviate that pressure, the government announced recently that the country's exporters no longer have to change their foreign exchange earnings into yuan.

Central bank governor Zhou Xiaochuan wrote in an article earlier this month that China will further relax controls on individuals' cross-border capital account transactions, Dow Jones Newswires reported.

Zhou said the focus would be on increasing the flexibility of residents' use of foreign exchange.