Private funding is no longer the only way small companies can raise capital in Wenzhou as the city moves toward financial reform that will inject more money into the system to help small and medium-sized enterprises.

In March, Wenzhou was selected by the State Council as the nation's first lending pilot project after a number of local entrepreneurs failed to repay their debts last year and fled .

With a population of more than 9 million in eastern Zhejiang province, Wenzhou is well-known for its private companies. More than 100 business owners in the city were reported to have disappeared, declared bankruptcy or even committed suicide during a credit crisis last year as unpaid debts surpassed 10 billion yuan ($1.6 billion).

Privately owned companies in China now generate about 60 percent of the nation's GDP, 50 percent of its tax revenues and 80 percent of urban jobs. Yet less than 15 percent of SMEs have been able to secure bank loans.

The Wenzhou pilot project covers 12 major areas as the city became the recommended location to develop privately owned financial services, village banks and rural financial centers and agencies, and where State-owned banks are encouraged to lend money to smaller businesses.

"All these efforts will encourage qualified State-owned banks and share-holding banks to set up special units to deal with credit for small enterprises," said Zhang Zhenyu, director of Wenzhou's financial office.

"To a great extent, the government is encouraging the establishment of SMEs and the sectors concerning agriculture and rural development."

Other steps in the pilot program include measures to standardize and legalize transactions of non-listed company shares, technologies and cultural properties, encourage SMEs to issue bonds in Wenzhou and set up guarantee mechanisms for small companies.

An SME financing service center was opened in Wenzhou to ensure companies get low-interest loans. By July 31, the private lending center offered more than 737 million yuan to individual local borrowers, the majority of them owners of struggling SMEs.

"From a long-term perspective, Wenzhou has gained an edge through strengthening its capability of turning private capital into industrial capital by further carrying out financial reforms," said Guo Tianyong, a professor of banking development at the Central University of Finance and Economics.

Guo said helping eligible small operations transform into rural banks is a major breakthrough in financial reform, clearing a hurdle so private capital can enter the banking industry.

Wenzhou Financial Reform Plaza that opened in August is the most recent step in the reform initiative. Thirty-two enterprises and agencies have set up offices in the plaza to offer a financial platform for individuals and companies to make investments and trade directly.

Also now available to SMEs at the plaza are centers for financing services, auction trading, private capital management and overseas investment information.

More centers and agencies are expected to begin operations at the plaza.

"The pilot project will set free the power of Wenzhou's private capital," said Zhou Dewen, chairman of the Wenzhou Small and Medium-sized Enterprise Development Association. "We will see a new growth cycle in non-State-owned investment and financial services."

zhuanti@chinadaily.com.cn