WENZHOU City, east China's Zhejiang Province, has launched a scheme under which individuals will be allowed to invest overseas on a trial basis to encourage capital outflows amid high inflation and rising foreign exchange reserves.

Residents in Wenzhou can invest up to US$3 million overseas in any single investment or spend no more than US$200 million annually, and may not invest in overseas financial companies, the Wenzhou Foreign Trade and Economic Cooperation Bureau said in a statement posted on its website.

Several individuals can invest up to a combined US$10 million in the same project overseas.

In the Wenzhou trial, individuals can convert their yuan into foreign exchange, or use their own foreign exchange assets, the statement said.

The yuan is not yet fully convertible under the capital account, or for investment in China.

The State Administration of Foreign Exchange earlier said it will steadily reform the management of the yuan's capital account.

China is already the world's biggest foreign exchange reserve holder with US$2.65 trillion at the end of September.

Ample liquidity in China and limited investment options are viewed as major drivers of worsening inflation in China.

The expansion of capital outflow can help cut pressure.

The Consumer Price Index, the main gauge of inflation, rose 5.1 percent in November, the biggest gain in 28 months. Food prices jumped 11.7 percent last month, also the most since July 2008.

China has unveiled moves in a bid to curb inflation, including two interest rates increases and six reserve requirement ratio hikes in 2010.