Taili Industrial chairman Zheng Xiangpo said the consortium was drawing up a proposal for a bank that would be 100 per cent privately owned.

It would have registered capital of 500 million yuan and serve small and medium-sized businesses - the strength of the city's economy, he said.

At the launch ceremony, Wenzhou deputy Communist Party chief Bao Zhedong said the city must create a more open environment for the private sector. 'The private sector cannot rely on itself alone.'

Also at the ceremony, China Construction Bank and Agricultural Bank of China signed strategic partnership agreements with Sinorich, while Shenzhen Development Bank said it had agreed to provide credit totalling one billion yuan.

Sinorich is the second major private conglomerate to be set up in Wenzhou in a month, following the establishment of the Zhong Chi Consortium last month. Finance and investment are included in their scope of business, but they do not speak of banking specifically as the sector is tightly regulated.

Ma Jinlong, deputy director of the city's System Reform Commission, said Wenzhou companies had the capital and experience to run private banks.

'For the past 20 years, we have had here a system of private finance in operation, with good and bad results, with companies that were well run and those that were badly run. This has given us good experience,' Mr Ma said.

'We must privatise finance. If we had private banks, their level of non-performing loans would be lower than that in the state banks.'

He said Sinorich shareholders wanted to set up a private bank and many firms would like to take a share in it.

'The decision rests with the central bank. I do not know when and if they will allow it.'

The China Banking Regulatory Commission and the central bank are considering applications for five private banks - Ruifeng Bank of Shenyang, Great Wall Bank of Xian, Jiangyin Commercial Bank of Jiangsu, South China Bank of Foshan and Shenzhen Minhua Bank.

The two regulators have not approved the applications because of concerns over their ability to supervise them effectively and ensure proper internal management. There are also concerns over whether they can prevent them becoming vehicles for shareholders to raise money.

Their caution will probably intensify after the collapse of D'Long, a private company that held shares in several commercial banks and borrowed money from many companies.

The Shanghai Securities News yesterday reported that D'Long owed at least 10 billion yuan to banks and other creditors, including five billion yuan in transactions involving listed companies that might not be recovered - a much higher figure than previously reported.