"We don't rule out the possibility of using further measures to curb liquidity," PBOC governor Zhou Xiaochuan said after raising bank reserve limits four times in seven months.

The central bank lifted the reserve requirement by one-half percentage point each in June, July, November and early this month after leaving them unchanged for more than two years. It estimates that every increase of that size reduces the amount available for lending by 150 billion yuan ($19.25 billion).

Now, by relaxing currency controls to make it easier for individuals to buy stocks and bonds abroad, the PBOC is trying a new measure to prevent cash from a record trade surplus and continuous capital inflow from going into new loans and overheating the world's fastest-growing economy.

In 1998, the quota for individual foreign exchange purchases was only $2,000. It was raised to $20,000 last May.

Using a conservative estimate that only 0.2 percent of Chinese residents use their quotas to diversify their savings would mean an annual outflow of $50 billion, a report by the Hongkong Shanghai Banking Corporation (HSBC) said recently.

But diversifying the savings of Chinese households still faces strong headwinds.

The yuan's exchange rate against the US dollar keeps rising. The yuan ended at 7.8051 against the dollar on the last trading day of 2006. It has appreciated 5.7 per cent since the fixed exchange rate of 8.28 to the greenback was abandoned on July 21, 2005. Amid expectations that the yuan will continue to grow by about 5 percent this year, its exchange rate against the dollar already breached the 7.8 barrier last week.

Also, the average Chinese individual lacks access to easier channels to invest in the global capital markets.

Since the PBOC announced a set of new measures to ease its capital controls, a dozen Chinese banks and other financial institutions have been given the green light to invest up to $10 billion of their clients' money abroad through the Qualified Domestic Institutional Investor (QDII) scheme. Yet, Hua An Fund Management Co is the only finance firm to get the approval to invest abroad with a limit of $500 million.

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