Private lending in the eastern city of Wenzhou shrank by 30 percent compared with August last year after the government vowed in March to regulate private financing activities in the city by setting up a pilot zone.

According to a survey conducted by the city's banking regulator, private lending was 30 percent less than in August. Loans from individuals slid by 50 percent.

So far, some 800 financial intermediaries have shut down businesses. Courts in Wenzhou have on average handled around 100 cases a day regarding private lending disputes, with the total amounting to 22,000 since August.

Many small and medium-sized enterprises in Wenzhou have been forced to rely on high-interest underground lending after failing to get finance when the central government tightened credit to rein in inflation.

A majority could not repay loans because of investment losses and the gloomy economy. During last year's credit crunch, about 100 managers or heads of private companies in Wenzhou were reported to have disappeared, to have committed suicide or declared bankruptcy — invalidating debts worth about 10 billion yuan ($1.58 billion).

To tackle the crisis and beef up market vitality, Wenzhou received the green light from the central government to set up a series of nongovernmental financing institutions on a trial basis, including micro-finance companies, private capital management companies and registering centers for private financing.