China has set up a special fund to support the development of small- and medium-sized enterprises (SMEs), said China's Ministry of Finance (MOF).

The funds, which come from the central government's budget, will offer China's SMEs free financial aid and loan repayment subsidies of up to 2 million yuan (250,000 US dollars) per project, according to a policy document issued by the MOF and the National Development and Reform Commission.

The MOF said the fund aims to promote the development of SMEs, help them make technological progress, make it easier for them to cooperate with large firms and improve the overall development environment.

The policy stipulates that self-financed projects, including fixed assets projects or projects aimed at bettering an SME's development environment, are eligible for free financial aid.

Fixed-asset construction projects usually financed by bank loans can apply for interest repayment subsidies for a maximum of two years.

Enterprises can only apply for one type of aid for each project, according to the policy.

Applicants for funds must be independent legal entities with a history of sound financial management, good economic performance and good accounting and tax credit.

China hope that the proportion of gross domestic product (GDP) contributed by SMEs will rise from 60 percent, the figure at the end of 2005, to 65 percent over the next five years, or 1 percentage point per year.

At the end of 2005, China's SMEs were paying nearly half the country's taxes and had provided more than three quarters of urban employment.

They contributed to 65 percent of China's patents, more than 75 percent of its technological innovations and over 80 percent of its new products.

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