A pilot project announced on Monday by the Chinese city of Wenzhou to allow its residents to make overseas investments could be a big step towards lifting capital account controls and making the Chinese currency more convertible. However, when something similar was tried once before it failed completely.

In August 2007, China’s foreign exchange regulator announced a plan to allow domestic investors to buy stocks in the self-governed territory of Hong Kong, in what amounted to a de facto opening of the country’s closed capital account.

In just over a week, the benchmark Hong Kong stock index soared more than 11 per cent to 24,000 points and within two months it had broken through the 30,000 mark as a result of the so-called “Hong Kong equity through-train” plan.