AS economic growth slows, the property bubble withers, exports trail off and industrial production weakens, cash-starved smaller private businesses in China are bearing the brunt of the pain and questions are being asked about the role big lenders play in a decaying boom.



Small- and medium-size enterprises in China account for 80 percent of employment and 66 percent of registered patents, reflecting the active role they play not only in providing income and jobs but also in pioneering innovative new ideas.



Access to the money needed to develop and market new concepts is difficult for private entrepreneurs, whose business track records are short and whose assets may be mainly the brainpower of clever staff. The big lenders shut their doors to them. They prefer to continue their traditional lending to the nation's big state-owned industrial giants, no matter how inefficient the behemoth monopolies have become.



Private initiative



The choking of perhaps the most vibrant sector of the economy has caught the attention of top government officials, who have been talking a lot of late about the need to buck up private initiative in economic development.



"Recently, the government is starting to favor private capital investment," Chen Xian, executive dean at Shanghai Jiao Tong University School of Economics, wrote in his column last week. "The economic downturn is steeper than expected. The government needs private capital to boost the economy at this turn. It's a matter of China's reform and development."



This latest twist in China's reform programs comes as business conditions flag. According to last week's MNI China Business Sentiment Indicator, published by Market News International, a unit of Deutsche Boerse Group, conditions in June were at their worst in about 30 months.



Xinhua news agency reported that corporate China is "freezing slowly," dimming prospects for the kind of business reformation the government was hoping would lift production up the value chain and introduce more advanced technology, management and thinking to business development.



Ma Guangyuan, a research fellow at the venture capital research institute of Peking University, wrote on his blog that the sluggish economy is caused by the monopolistic position enjoyed by state-owned enterprises.



"Companies with monopolies have no incentive to improve efficiency," he wrote. "In addition, financial and real estate investments have soaked up too much capital. It's a grandiose trap."



The big state-backed Chinese lenders have come under the considerable criticism for reaping "easy profits." The five-biggest lenders ? Industrial and Commercial Bank of China, China Construction Bank, Bank of China, Agricultural Bank of China, and Bank of Communications ? had a combined profit of 681 billion yuan (US$108 billion) last year, ranking them among the most profitable Chinese companies.



Standing out in the cold is the private entrepreneur, who is no doubt sour that banks seem to despise the poor and curry favor with the rich. Bank bashing has been sweeping the world as people blame profitable big financial institutions for society's ills. The Occupy Wall Street movement stretched far beyond the Wall Street to other cities in the world, fanned by general public hatred of banks, said Lu Sining, an editor and commentator at Phoenix InfoNews.



World attention



He said China has become a focus of world attention because the global economy can't afford to have its second-biggest growth area succumb to a downturn just as Europe is grappling with a debt crisis and the US is struggling to keep its gross domestic product in positive territory.



The State Council, China's cabinet, delayed the implementation of tougher bank capital rules twice to make sure there's ample credit supply to support the economy. The decision also started tipping the scales in favor of smaller businesses.



According to draft rules to become effective next year, the risk weighting of small loans has been eased from 100 percent to 75 percent. That means if a bank lends 100 yuan to a small business, it needs to set aside only 75 yuan as a reserve against possible losses on the money.



"One of the critical considerations when developing the draft was to strengthen the services to support the real economy," China Banking Regulatory Commission Chairman Shang Fulin said earlier.



Another talking point in the latest reform proposals is the role of private lenders in the economy.



Last month, the nation's banking regulator said it will allow private investors to enter the banking sector under the same standards as other investors. The move came after Premier Wen Jiabao said the entry of private capital would fundamentally break the nation's banking monopoly.



Creating wealth



Jiao Tong University's Chen hailed the deregulation in banking. "Private capital will create wealth for the society through market competition because it is more economically efficient," he said.



Shanghai has been used as a testing ground for China's financial and industrial reforms.



In a joint statement last month, the Shanghai Municipal Commission of Economy and Informatization, the Shanghai headquarters of the People's Bank of China, the China Banking Regulatory Commission's Shanghai Office and the Shanghai Municipal Commission of Commerce said they will strengthen cooperation between banking and other sectors of the economy.



Eleven local lenders, along with HSBC China, have agreed to supply 660 billion yuan in loans to 10 major industries, including high-end equipment manufacturing, green automobile production, the steel industry, biomedicine, information technology and energy-saving devices.



According to the joint statement, by the end of 2015, the production value of these industries will account for more than half of the city's total GDP.



The city's success may underpin China's reform and development in the future.