China's State Council announced Wednesday that Wenzhou of East China's Zhejiang province has been approved for a pilot financial reform which will help regulate private financing activities and allow the city's residents to make direct offshore investments.

The long-awaited decision was made at a State Council executive meeting presided over by Premier Wen Jiabao and at a time when underground financing activities in Wenzhou are rampant and have stirred up financial disputes and crime and threatened financial and economic stability.

The pilot project is expected to sort out Wenzhou's problems and make financing serve the real economy and is deemed not only important for the healthy development of Wenzhou, but also of great pioneering significance for financial reform and economic development throughout the nation.

The pilot program will include 12 major tasks, including setting up a file management system for private financing and improvements to the fund monitoring system, encouraging participation of private capital in the reform of local financial institutions, and guiding private funds toward the establishment of venture capital and private equity activities as well as other types of investment bodies.

Also, the government will encourage qualified state-owned banks and share-holding banks to set up special units to deal with credit grants to small enterprises.

The government vowed to encourage the establishment of financial leasing enterprises that serve small and micro enterprises as well as sectors concerning farmers, agriculture and the city's rural areas.

Other steps of the pilot program include measures to standardize and legalize transactions of non-listed companies' shares, technologies and cultural properties, encourage small and micro companies to issue bonds in Wenzhou, set up guarantee mechanisms for small and micro companies, and encourage commercial insurers to participate in the establishment of a social security system.

Earlier this month Wen told a news conference at the National People's Congress that the government needs to guide and permit private capital into the financial arena, standardizing it and bringing it into the open, encouraging its development and strengthening its supervision.

The comments came in response to a question about private fund-raising and the case of Wu Ying, a businesswoman who faces execution for illegally raising 770 million yuan ($123 million). The case is awaiting final review by the Supreme People's Court.

Wenzhou, with a population of over 9 million in east Zhejiang province, is famous for its private businesses.

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