China's top legislators and advisers are calling for the government to beef up efforts to solve funding difficulties that affect the further expansion of private businesses, mostly small- and medium-sized enterprises (SMEs).

"It (private business' difficulty in raising funds) is a long-term bottleneck that haunts us," Ji Yujun, a National People's Congress (NPC) deputy from Shandong, told China Daily. He is also the president of the Xiyingmen Group, China's top towel exporter that grew from humble beginnings as a small township firm.

According to a survey conducted in East China's Zhejiang Province, which has the country's most active private economy, 45.7 per cent of respondents, all private firms, say that the biggest obstacle hampering the sound development of the private sector is difficulties in finding financing. About 66.7 per cent of the respondents believe it is "very hard" for them to get loans from financial institutions.

"State and private enterprises are not given an equal footing in obtaining bank loans," said NPC deputy Liu Weizhi. "Commercial banks 'habitually' favour State-owned firms," he said.

"This should be rectified to meet the current situation as the private sector is booming and contributes quite a lot to the national economy in many aspects such as job creation," said Liu, who is currently president of a State-owned enterprise.

By the end of November 2003, the number of China's private enterprises was 2.97 million, with a registered capital exceeding 334.7 billion yuan (US$40.5 billion). The private sector contributes to half of China's national economic growth.

Li Yining, vice-chairman of the Economic Committee of the Chinese People's Political Consultative Conference (CPPCC), suggested the central government should consider establishing small- and medium-size private banks to better serve private businesses.

In addition, Li suggested reforming the banking system and designating a number of financial institutions to provide loans to SMEs.

About 99 per cent of private firms are SMEs.

NPC deputy Ji Yujun also said special banks to serve SMEs should be set up, believing they could help the money-starved private sector.

"In many countries, such as the United States, Japan and South Korea, there are policy banks specifically serving SMEs. They are the major source for small companies to get loans," Ji said.

Many deputies emphasized the necessity to set up an overall and effective social credit system, saying it is the most important factor in encouraging banks to lend to private investors.

"Without the system, banks will think twice when private businesspeople apply for loans," said Gansu NPC deputy Zhao Peng, who is president of the Gansu Branch of the China Industrial and Commercial Bank. "Banks know too little about applicants' credit and performance, and as a matter of fact we are unwilling to lend money to them."

In addition, NPC deputies hope the second board market, still pending approval, could be launched soon.

Aimed at SMEs, the board will help many private firms, particularly in the high-tech sector, raise funds on the market.

Due to strict criteria for entry to the country's main board, SMEs often find it too difficult to get into the stock markets, even though some have experienced more than three years of profits.

Meanwhile, NPC deputies are also calling for the private sector to become more self-disciplined to win the respect and recognition of society as a whole.

Xia Chaojia, a Sichuan NPC deputy and director of the large private firm Jiahe Group, urged private sector to stop excessive complaining and cultivate its "inner strength" to raise its credit and profile.

"We should not blame the banks too much for their reluctance to offer loans," Xia said. "Some of the private firms have very bad credit. Practices, such as tax evasion, bribery and making shoddy products, stained their reputation," he said.

"Banks will not refuse you if you are really competitive and profitable," he added.