SHANGHAI - To solve the financial difficulties among small and medium-sized enterprises (SMEs), Shanghai municipal authorities announced on Tuesday plans to increase the number of underwriting companies from 69 to 100 during the coming years.

According to statistics from the Shanghai Municipal Finance Bureau, 58 small-loan underwriting companies were operating in the city at the end of last year, with loans worth 17.3 billion yuan ($2.7 million) annually. The number of underwriting companies has increased to 69.

"We aim to have about 100 underwriting companies in the city with a target for annual loans valued at 35 billion yuan in the next few years to ensure the ongoing availability of loans for SMEs to borrow anytime they want," said Jiang Zhuoqing, head of the Shanghai Municipal Finance Bureau at a news briefing to announce a series of policies to support SMEs.

At the moment, the majority of smaller private companies are starved of loans as the country tightens credit controls to fight inflation and that' has resulted in severe financial problems for SMEs. "We're already burdened with the rapid rise in labor costs and the soaring price of raw materials, so the tight lending policies have forced us to face more severe financial difficulties," said Huang Xiaojin, manager of Shanghai Hantech Co Ltd, a local manufacturer of water-treatment components.

Huang's company has had to mortgage the land on which its factory stands to the underwriting companies for short-term loans from time to time simply to maintain production.

"If the requirements for lending can be loosened in tandem with an increase on number of underwriting companies, as the local government promised, we will probably be able to solve our financial problems soon," said Huang.

The Municipal Finance Bureau will pay closer attention to the high costs and risks of private loans and to promoting a healthier financing environment.

"Three billion yuan will be used in three ways to support the SMEs: for the expansion of underwriting companies; on lending risk controls; and on coordinating with commercial banks to provide loans, especially for high-tech companies," said Jiang.

The Shanghai Banking Regulatory Bureau has also promised to encourage more commercial banks to assist and regulate the operations of underwriting companies.

"More commercial banks will be advised to cooperate with the underwriting companies on risk control and to guarantee all the SMEs in the city will be able to apply for loans on time," Liao Min, head of the Shanghai Banking Regulatory Bureau, said at the news conference.

"The tightened loan policies made SMEs the victims of financial restrictions, as most bank loans were released to State-owned companies initially," said Liu Shengjun, deputy director of the Lujiazui International Finance Research Center at the China Europ-e International Business School.