Shanghai will encourage local companies to invest in private-equity funds, attract the best fund management companies and offer capital support as the city cooperates with the finance industry to boost its economic upgrade.

"Innovation on products, management, services and system is key of the program to boost economic upgrading with the help of the finance industry," the Shanghai Financial Services Office said yesterday.

Earlier this month, Shanghai issued guidelines to reiterate the financial industry's role in helping the city achieve a more sustainable growth model.

Under the guidelines, the city government makes it clear for the first time that districts can treat private-equity or venture capital companies as quasi-financial players and offer preferential policies to them. The companies are not included as financial institutions in national regulations.

So far, 101 private-equity management companies have been set up in the city.

Also, Shanghai will encourage more government-backed financial guarantee companies to help potentially high-growth small companies secure loans. They are now too conservative to offer guarantee or collateral on bank loans.

"A new incentive mechanism will be mapped out to not only check guarantee companies' ability to secure capital but also their ability to leverage loans," said Fang Xinghai, director of the local finance office.

The city aims to almost double its funds for financial guarantees to small companies to 2 billion yuan (US$295 million) by 2012.

Shanghai will also offer more government subsidies, a new over-the-counter market and support for small and medium firms to list.