Zhao Xijun, a professor of finance at Renmin University of China, said it would be good news for SMEs that are troubled by a credit crunch resulting from a combination of factors, including tightening monetary policies, rising material costs and mounting pressure from global recession.

According to latest statistics from the NDRC, in the first six months of 2008, about 10 percent of SMEs in the country realized a mere 30 percent increase in industrial added value, down 15 percentage points from the six months to June 30, 2007.

During the same period, 67,000 SMEs went out of business. The hardest hit were those in the labor-intensive sector such as textile and garments. In the first half of this year, about 10,000 textile factories have closed down and nearly two-thirds of textile manufacturers were on the brink of bankruptcy.

"But whether the proposed bank can fulfill its function of providing loans to SMEs would depend on how much the government is prepared to put up as initial capital and what kind of preferential treatment such a bank would receive," said Zhao of Renmin University of China.

(China Daily August 5, 2008)