China will allocate 10.6 billion yuan(US$1.5 billion)?to beef up development of small and medium-sized enterprises (SME) this year, says a government work report delivered by Premier Wen Jiabao at the parliament's annual session Friday.

The government will implement a preferential income tax policy for small enterprises with low profits. Those enterprises will be eligible to receive money from special funds for technological upgrading in the central budget, Wen told deputies to the National People' s Congress (NPC).

"We will expand channels for small and medium-sized enterprises to obtain financing, and develop a multilevel system of credit guarantees for these enterprises," Wen said.

China has 4.3 million registered SMEs, which contribute nearly 60 percent of GDP and three quarters of job opportunities.

However, SMEs are often troubled by financing difficulties, as banks are reluctant to lend them out of risk concerns.