Chinese securities and fund-management firms will be allowed to invest overseas in a move seen as cooling the overheated mainland stock market.

The China Securities Regulatory Commission (CSRC) said yesterday that eligible financial firms will get licenses as qualified domestic institutional investors (QDII) starting July 5. The scheme has so far been limited to banks and insurers.

For eligibility, fund-management firms must have net assets of not less than 200 million yuan ($26 million) and at least two years' experience in stock investment. Securities companies must have a net registered capital of no less than 800 million yuan ($105 million) and at least one year's experience in collective asset management, according to the rule.

It is estimated that a score of securities and fund firms will meet the standards. They will also be able to join banks and insurers to launch investment products.

"If the program goes well, we will consider lowering the barriers for more firms to join in," Li Zhengqiang, vice-director of the CSRC's fund companies' supervision arm, said.

Special coverage: Markets Watch Related readings:  HSBC Bank will roll out expanded QDII plan  Insurers to invest in overseas equity markets  Analysts upbeat over QDII moves QDII could help save China's bubble market

He said that given their lack of overseas investment expertise, local securities and fund companies will be allowed to hire international consultants.

The move is set to diversify mainlanders' investment options and help develop local financial firms' outbound investment capability, a CSRC official said.

The securities watchdog said it is working with the State Administration of Foreign Exchange (SAFE) to decide on the financial firms' foreign currency quotas.

The major index of the A-share market yesterday plummeted 88 points, or 2.07 percent, to close at 4181, over fears that the expanded QDII program will lead to capital outflows from the mainland stock market.

"H shares will be the prime beneficiary of the expanded QDII program. Increasing QDII money outflows to overseas markets and a relatively cheap valuation will make Hong Kong's H shares more attractive than A shares," said Jing Ulrich, managing director of JP Morgan Securities.

According to SAFE data, 19 banks and three insurers have been granted QDII licenses since the government launched the scheme in 2004.