Disgruntled businessmen in China's most populous city, Chongqing, yesterday unveiled a bold plan to set up what could become China's first exclusively private bank. The new bank will be dwarfed in size by the massive state-owned banks but was being established because its giant rivals were unwilling to make loans to private companies, said a spokesman - an economist named Tu employed by the city's Industrial & Commercial Association (ICA). Yet to be named, the bank would be established with exclusively private capital backing of one billion yuan, said Mr Tu - distinguishing it from the handful of partly-private banks already operating on the mainland. No single shareholder would be allowed to take more than a 10 per cent stake, and the state would hold no interests in the bank, he said. The ICA, which represents the private sector in the commercial and industrial hub of Sichuan, was working on the proposal which was likely to be approved by the central bank because it was in line with central government policy, Mr Tu said. 'The main reason to set up this bank is that private firms find the state banks unwilling to lend to private companies, which they regard as too high risk,' he said. 'In addition, private companies find their fees too high and their procedures too complicated. 'Also, private companies have shortcomings which make them ineligible for loans from state banks. Such a private bank would be good for private companies and stimulate their development.' Mainland analysts based in Hong Kong echoed these sentiments, but cautioned that the evolution of privately-owned banks would be a slow and drawn-out process. 'But this touches on an area that both banks and the government still need to address - how to fund privately-owned small and medium enterprises, at what rates of interest, and under what regulations,' said Andy Xie Guozhong, managing director and chief economist for Asia Pacific for Morgan Stanley. Credit Suisse First Boston senior regional economist Dong Tao said the Chongqing proposal appeared to be more in line with setting up a private credit co-operative. 'One billion dollars doesn't make you a bank. It's tiny.' But Mr Tao added that there was a clear need for a new breed of privately-owned lenders on the mainland. 'Some good companies are chased by banks but the smaller ones with no credit history are being shunned,' he said. To some extent the ability of the big state-owned banks to lend was limited by the pressure they were under to reduce their crippling non-performing loan burdens, Mr Tao said, and it was therefore not just privately-owned companies which were finding it difficult to get access to credit. 'The other side of the story is that [emerging private companies] have little credit history and banks find it hard to make an assessment of their credit risk,' he added. But since the mainland government had placed a 'clear priority' on resolving these problems, and it acknowledged that it could no longer force state-owned banks to lend, the development of new private institutions was justified. 'Bank loans presently go to only a small proportion of Chinese companies,' Mr Tao said. 'The large borrowers are going to capital market to raise their funds, medium-sized companies are forming joint-ventures to get capital - and how to address the needs of smaller SMEs in the under-developed coastal regions is an issue.' Private banks with varying stakeholdings held by the authorities already exist in China - including the China Minsheng Bank in the news this week with a proposed four billion yuan convertible bond issue. Others include the Taizhou City Commercial Bank in Zhejiang province - with a staff of 750 and more than 100,000 clients; and the Tailong City Trust and Co-operative - with 20 million yuan in capital, 300 staff in a dozen outlets and more than 100,000 clients. The two have a non-performing loan ratio of less than 3 per cent and earlier this year received a positive rating from an inspection team from the People's Bank, the central bank. In September, the People's Bank announced that urban commercial banks could enlarge their share capital by accepting private money. As a result, eight such banks in Zhejiang invited private firms to subscribe, with the aim of a private share of more than 50 per cent and of cutting the state share to about 30 per cent. Since then, Jinhua Commercial Bank has attracted applicants offering 27 million yuan and Wenzhou Commercial Bank 50 million.