BEIJING, Oct. 17 (Xinhua) -- As China's central and local governments have taken multiple relief measurements to help private firms, more small- and medium-sized enterprises trapped in the liquidity crunch are now seeing dawn break.

Previous media reports stated that small- and medium-sized enterprises (SMEs), which contribute to 60 percent of China's industrial output and create 80 percent of the country's jobs, have faced an unprecedented crisis this year as they struggle to survive a fund shortage amid the country's tightened macroeconomic control policies.

At least 80 cash-strapped businesspeople in the city of Wenzhou, east China, have committed suicide or gone into hiding to invalidate more than 10 billion yuan in debt owed to individual creditors pooled from the private lending market.

News of the incidents has even made waves in the central government. During a visit to Wenzhou on Oct. 5, Premier Wen Jiabao urged financial support for debt-laden small businesses.

According to Xinhua, an official investigation has shown that the crisis has now largely been kept under control, while some of the runaway small-businessmen are returning in the last week.

GOVERNMENT’S EFFORTS

The government has become increasingly concerned about the well-being of small businesses and called for more financial and fiscal supports to help them out of the debt crisis.

"Small enterprises should be a priority for bank credit support and enjoy more preferential tax policies," Premier Wen said during his visit to Wenzhou. "Banks should increase their tolerance for the non-performing loan (NPL) ratios of small enterprises and reduce the cost of securing credit."

Wen also requested a crackdown on the high-interest informal lending market, which operates outside the country's banking industry. The informal lending market between companies and individuals provides high-interest loans to many private entrepreneurs facing a cash squeeze.

The State Council, or China's Cabinet, on last Wednesday pledged stronger financial and fiscal support to small- and micro-sized businesses by reducing their tax burdens and encouraging banks to increase loan support for small firms.

The Cabinet's fiscal support measures for small firms include raising the tax threshold for corporate value-added taxes and business taxes, extending a policy to halve business income taxes by another four years, and forgiving banks' stamp tax on lending contracts with small firms for three years.

China also aims to boost the scale of special funds designated for small- and medium-sized enterprises. Data from the Ministry of Finance (MOF) showed that these special funds have totaled 43.81 billion yuan since 1999. In 2009 and 2010, these funds amounted to 23.32 billion yuan.

"The policies have come in time, especially the fiscal policies which can directly benefit small firms by reducing their taxes and offering them a better environment for development," said Liu Shangxi, deputy chief of the Research Institute for Fiscal Science under the MOF.

MORE SURPPORTS FROM FINANCIAL INSTITUTIONS

Under the government's coordination, commercial banks of the country now have increased their lending ratio to assist small- and mid-sized enterprises overcome the current difficulties.

They are also prohibited from charging fund management fees, financial consulting fees and other unreasonable fees for their services to small firms.

Sources with the Bank of China said that the bank plans to lend 120 billion yuan to small firms this year, and lending growth to small companies will be 30 percentage points higher than its average lending growth.

The Agricultural Bank of China announced Thursday that its Wenzhou branch plans to lend at least 10 billion yuan this year. It also promised that new lending would give priority to small firms.

"Tax reductions are particularly important to small firms on what already are thin profits. Structural tax reduction is also necessary in China considering the government's fiscal income growth has been much faster than economic growth in recent years," said Lu Zhengwei, an economist with Industrial Bank.

LOCAL SELF-RESCUE STEPS

In answer to Premier Wen's appeal, the Zhejiang provincial government has sent 11 work groups to oversee a bank bailout of private firms suffering from the liquidity crunch.

A total of 25 banks in Wenzhou pledged on Tuesday to increase lending in order to tackle the crisis.

"The government will help those companies that are trapped in the financial crunch but have the ability to survive the difficulties," said Chen Derong, vice governor of Zhejiang province.

Tao Lingfu, head of the Wenzhou branch of the Bank of China, promised the bank would continue to issue loans with interest rates lower than 30 percent to corporate borrowers that are having liquidity problems but able to sustain production.

Meanwhile, local industry associations have also adopted measures to offer financial help.

Zhou Dewen, chairman of the Wenzhou SME (small- and medium-sized enterprises) Development Association, said the association has prepared an emergency fund worth 900 million yuan (141 million U.S. dollars)to help private firms in urgent need of cash to sustain operations.

"The association's member companies would make donations to the fund," he said.

NEW HOPE RISES FOR SMES

New policies and financial assistance taken by governments seems to be effective and Wenzhou's runaway bosses have chosen to come back.

In the last week, three of more than 90 private entrepreneurs who had gone into hiding in recent weeks to avoid repaying high-interest informal loans returned home.

Hu Fulin, president of the Xintai Group, China's largest eyeglasses manufacturer, fled to the United States from Wenzhou on Sept. 21 to escape a 1.5-billion-yuan debt. He returned to China on last Monday.

"I hope my company can overcome the current difficulties with the government's support," Hu said upon arriving in Wenzhou.

Sun Fucai, board chairman of the Aomi Fluid Equipment Co., Ltd., also returned to Wenzhou last Monday.

"I don't want to spend the rest of my life living in the dark," he said.

"I believe my company will get back on track, as the government has pledged strong support in helping me get bank loans," Sun said.

However, officials are mulling over more, concrete measures to solving the debt problem of SMEs in a fundamental way.

The cash shortages are a chronic problem that cannot be solved all at once, Xie Sanming, an official from the MITT, was quoted as saying by the 21st Century Business Herald.

"We hope the government's relief measures can not only pull SMEs through financial difficulties but also boost their industrial transformation," said Yang Xiaoping, chairman of the Zhejiang branch of the China Banking Regulatory Commission.