(Yicai Global) Feb. 15 -- China's cabinet wants financial institutions to issue more loans to private small and medium-sized enterprises that are struggling to obtain credit.

Institutions prefer to lend to low-risk clients, particularly larger state-owned companies, the State Council said in a statement yesterday, adding that this leaves smaller, private firms unable to secure loans to expand. Several lenders consider issuing credit to these companies as something they have to do, it added, saying the policies that aimed to support smaller firms led to banks blindly mass lending to them, which just increased financial risk.

"It's not that banks are unwilling to lend money," Gong Zhijian, president of China Minsheng Bank's Chengdu office, told Yicai Global. "They just want to lend to companies that have controllable risks, controlled costs and high returns."

The State Council aims to combat this by having local governments build information service platforms that can encourage data sharing.

Authorities should improve big data services for finance, tax, market supervision, social security and judicature by using national data exchange systems to integrate data at all levels, it said, adding that financial institutions and private companies also need to optimize information exchange mechanisms to communicate more efficiently.

Commercial banks should also devise long-term evaluation mechanisms and encourage regional offices to improve their internal performance appraisal mechanisms as soon as possible, and set annual targets for private firm services, according to the document.

Local branches and other staff who serve private firms need to focus on comprehensive assessments in terms of the number of firms they serve and the quality of credit loans they issue; improve their due diligence mechanism and increase their tolerance for non-performing loans, the cabinet said.

In order to improve the availability of funds for private companies, lenders should increase the proportion of new corporate loans going to these firms, per the statement. Financial institutions must not discriminate when assessing for loans, and should offer the same interest rates and terms for smaller companies as they do for larger ones, it added.

The State Council also wants to promote the development of local equity financing and angel and venture capital investment in private science and technology firms; improve tax policies to support VC investors and standardize regional equity markets and build a multi-layered equity financing market; and encourage local governments to coach private firms on equity funding.