GUIYANG has been named a pilot city for the establishment of financial co-operatives in China as part of the country's financial reforms to shore up local and regional economies. Luo Jidong, vice-president of the People's Bank of China Guiyang branch, said the city was one of the 35 mainland cities designated to experiment with financial co-operative banks. 'Because of the flexibility, financial co-operatives could help support and adjust local economies because they accept, as customers, smaller enterprises that otherwise are shut out by state banks,' he said. Financial co-operatives are biggish credit agencies, will have bigger issued capital and be allowed to handle larger amounts of funds. Credit agencies are small co-operatives receiving deposits and providing loans to customers. Credit agencies are not the mainstream of the financial system, but they are designed to complement state banks in the local economy and are less vulnerable to government policies. They usually target individuals, individual enterprises, collectives and contractual enterprises, offering better service and higher flexibility. The move to establish financial co-operatives came as credit agencies increasingly appeared incapable of handling the rising number of individual enterprises in the city. Guiyang is characterised by a huge number of private, individual and township enterprises, largely because of its slow pace in attracting foreign capital. The reforms have come as the country moves to tighten credit in the financial sector. State banks are also freezing their lending to enterprises, which are in turn facing the worst credit crunch in years. 'In view of the changing economic structure, a new kind of institution is urgently needed to meet the changing environment,' Mr Luo said. He said Guiyang would set up one financial co-operative with at least 10 shareholders which would be local credit agencies. There were a total of 25 credit agencies in the city, of which the largest held 100 million yuan (about HK$90 million) deposits. 'We aim to set up the co-operative as quickly as possible. But this will hinge on the country's relevant regulations on financial co-operatives,' he said. Mr Luo believes that the introduction of financial co-operatives could strengthen the role of credit agencies through the standardisation of operations.