The bank will launch a loan re-guarantee service to smaller firms in Shanghai later this year using the fund.

Shanghai is the first pilot city to benefit from such a new service, which is expected to cover other major Chinese cities in the following years, according to the bank.

Liu Kegu, the bank's vice-president, said yesterday that the new service indicated the central government's determination to increase financial support for China's smaller companies.

He said this will be a focus of the country's financial reform in the coming year.

The bank's loan re-guarantee service in Shanghai is a "milestone innovation," said Liu.

The China Development Bank was established in March 1994 and is a policy-making financial institution directly under the State Council.

Loans from the bank mainly go to key infrastructure construction projects and pillar and high-tech industries in China.

Shanghai currently has more than 218,000 small and medium-sized firms. They are mostly privately owned and provide jobs for more than 80 percent of employees in Shanghai.

However, only 1.4 percent of Shanghai's smaller firms have received any credit guarantees, compared with 25 percent in Japan.

The percentage is even lower in China's hinterland, according to officials at the bank.

There are only 18 bodies in Shanghai that provide loan guarantees. They have a total registered capital of 1.25 billion yuan (US$151 million).

Pu Zaiming, vice-director of the Shanghai municipal government's Economic System Reform Office, noted that the bank's pilot programme in the city will help local loan-guarantee organizations further reduce business risks and therefore further develop the system.

The city will need at least 7 billion yuan (US$846 million) in capital for loan guarantees to meet demand for the following three to five years, Pu predicted.

The official said more private capital should be made available to add to the city's loan-guarantee bodies.

(China Daily April 3, 2003)