According to AFP, the China Banking Regulatory Commission is concerned that a proliferation of private financing could result in a dramatic increase in the number of bankruptcies occurring across the nation in the near future.
Therefore, financiers have been ordered to lift their commitment in small business loans for all requests they receive below five million yuan ($785,000), because otherwise these firms will be forced to look to the private sector to gain the finance they need.
In recent times, a lack of fluidity from state-owned lenders towards smaller firms has resulted in a growing number of people having to take on loans with high levels of interest from private sources.
And this has led to concern about the possibility for more insolvencies to occur in the Asian nation in the coming months.
Meanwhile, it emerged last week that China's gross domestic product growth dipped for the third three-month period in succession in the last quarter.
By Claire Archer