Local governments in Zhejiang province are setting up emergency funds for small and medium-sized enterprises that have failed to obtain loans from banks or other agencies underwritten by guarantee companies.

It is not the first time that regional governments have launched emergency funds to help SMEs.

The Xiaoshan district of Hangzhou raised an emergency fund of 500 million yuan ($78.5 million) in 2008, when the global recession hit.

"We relaunched the emergency fund of 500 million yuan in October by supplying loans with a total amount of 1.5 billion yuan to local SMEs," said Hong Quanliang, director of the operations department, economic development bureau of Xiaoshan district in Hangzhou.

Hong added that the fund will continue until there is a clear sign that the majority of SMEs have no trouble getting loans.

Wenzhou recently suffered a severe credit crisis after many businessmen fled the city to escape repaying their high-interest debts to private lenders.

A pilot financial reform was launched in March after the crisis with an emergency fund of 1 billion yuan for SMEs to borrow from.

"A temporary emergency fund of 1 billion yuan was launched at the end of October to prevent the massive shutdown of companies that were having financial problems," said Huang Shoujun, director of the SME department at the Wenzhou economic and information commission.

The launch of Wenzhou's private lending center and Wenzhou's SME financing service center, aimed to channel private funds into the financial system, are two major steps of the pilot financial reform.

Until July 31, the private lending center had offered more than 737 million yuan to local individual borrowers, the majority of who are owners of local struggling SMEs.

"It's impossible to borrow if the individual fails to pledge either assets or shares to prove that he has the ability to repay the debts," said Xu Zhiqian, the spokesman for Wenzhou's private lending center.

Xu added that it's no longer easy to find underwriters to assist borrowers with loan applications.

To solve the crisis of credit companies in Wenzhou, the local commerce set up certain funds gathered from bigger enterprises to help out the SMEs.

"Our commerce had offered over 10 million yuan in short-term loans to hundreds of enterprises in the city since October," said Zheng Chen'ai, the chairman of the Wenzhou Chamber of Clothing Commerce.

Zheng added that the major concern for the moment is not the money, but the low credibility of loan borrowers, especially after the credit crisis.

Guangdong province faces a similar situation.

Nearly half of the financing guarantee companies in the Pearl River Delta area are having problems with less business, said Li Sicong, executive chairman of the Guangdong Credit Guarantee Association and president of Guangdong Yinda Guarantee Investment Group Co.

The guarantee businesses in the area declined by up to 30 percent year-on-year, he said, citing a recent survey of more than 40 medium-sized member companies of the association.

More than 80 percent of the credit guarantee companies in Guangdong saw their business and profits decline year-on-year in the four months to July, said Li Youhuan, a researcher at the Guangdong Academy of Social Sciences.

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Shu Meng in Guangzhou contributed to this story.