WENZHOU - To China's reform and opening-up drive over the past three decades, the city of Wenzhou in east coastal Zhejiang province was a symbol of family workshops, township enterprises, small commodities, housing speculators and private capital.

After surviving a private lending crisis that almost crippled the local economy and spilled over to neighboring places last year, the city known as the cradle of China's private businesses now has a new tag -- a financial reformer.

Private companies' difficulty accessing bank loans and disorder in underground non-bank lending prompted the central government to install a financial reform pilot zone in Wenzhou in late March to trailblaze national reform in the world's second-largest economy.

As part of the pilot scheme, a private lending registration service center was inaugurated late April in Wenzhou to serve as an intermediary between borrowers and lenders in an attempt to standardize private lending in the city, where private funds are plentiful.

"It took only one week to get a loan after I applied for it at the center," said Hu Suliang, a digital product store owner who became the center's first customer to obtain a one-month loan of 50,000 yuan ($8,000) from an individual.

"The interest rate is acceptable and it meets my urgent need," Hu said.

To get the loan, he had to collateralize his car and agreed to pay a 1.6-percent monthly interest rate, which is about twice the official rate in banks.

Due to the high risks of lending to small and medium-sized enterprises (SMEs), the banks are very cautious in granting loans to such operations, as the country's macro control policies have made credit very tight in the banking sector.

The squeezed credit situation among SMEs like Hu's store has prompted considerable reflection across the country, urging policymakers to reassess how to push forward reforms.

Those who have abundant private capital, however, also complain that they have few areas to invest it in, as the government's restrictions on housing speculation and investment, along with the weakness in equity markets, have left them little choice but to engage in the risky private lending that last year imperiled the entire banking system.

The financial office of the city government estimated gross private capital at more than 600 billion yuan in Wenzhou and that the fund grow at an average annual rate of 14 percent.

In recent years, private capitalists usually ended up speculating on every product they could think of, from houses to garlic, from paintings to traditional Chinese medicinal herbs.

To regulate private financing activities that ballooned into a debate on financial and economic stability, the State Council, or China's cabinet, commissioned Wenzhou to sort out its problems and make financing serve the real economy with 12 major tasks under the financial reform pilot scheme.

The program aims to lure private capital into participating in reforming local financial institutions, and to guide private funds to establish venture capitals and private equities as well as other types of investment bodies.

The State Council also allows qualified small-loan companies in Wenzhou to become village and township banks.

Dai Yunxian, a majority shareholder of Kexin Small-sum Loan Holdings Co. Ltd. in Yongjia County of Wenzhou, saw a perfect opportunity for private funds to justify themselves with the state's permission to turn small-loan companies into banks. Incorporation of banks would allow small-loan companies to take deposits and make more loans.

"To companies like us which experienced the private lending crisis last year, expectation on this reform is very high," Dai said.

Many SMEs turned to small-loan companies rather than major banks for borrowing in 2011 after the central bank raised required reserves for banks to tame soaring inflation, which left most small-loan companies short of money for lending, Dai said.

Liu Yuanchun, vice president of the School of Economics at Renmin University of China, agreed with Dai on the outlook for Wenzhou's financial reform.

"As initiators of the Wenzhou reform, private capitals are actually aiming to break through the existing business boundaries, " Liu said, adding that he believed private funds would transform the reform into new business opportunities.

Chinese SMEs, Liu observed, still faced two major problems: they could not get loans from banks or they could get them, but, at very high costs.

If the financial reform in Wenzhou enables private capitals to emerge from underground and greatly lower financing costs, the reform would be a success, Liu said.

"The reform has a national significance far beyond Wenzhou and would be the foundation of following financial transformations," he said.

As calls for accelerating reform are rising, central government departments, including the Ministry of Finance, the People's Bank of China, the China Banking Regulatory Commission and the China Insurance Regulatory Commission, have sent teams to Wenzhou to review lessons and experience in preparation for a nationwide reform.

Shenzhen in south Guangdong Province also planned to launch reforms on improving financial services shortly after the Wenzhou drive. But Shenzhen's plans still await an approval from the central government.

"The essence of the Chinese reform is that after the central leadership gives reformers a signal and a stage to perform, it all depends on their enthusiasm and creativity," said Ma Jinlong, president of the Wenzhou Economic Society.

"All eyes are on courage, wisdom and insight of Wenzhou," Ma said.