The city of Quanzhou in Fujian province has been approved as the third pilot financial reform zone in China, and will form a diversified and dynamic financial system to support the development of local enterprises over the next five years.

According to the plan jointly released by 12 ministries on Tuesday, the pilot project aims to diversify[Hong Kong Company Formation, Incorporation, Business Registration] local financial institutions, explore more innovation in financial products and provide capital backup for small businesses.

The other two zones are the city of Wenzhou in Zhejiang province and the Pearl River Delta in Guangdong province. Both were approved earlier this year by the State Council, China's cabinet.

The financial reform plan submitted by Quanzhou was given the official green light on Dec 21, said local government officials at a news conference on Tuesday.

The measures to be implemented call for financial reform that will include bonds collectively issued by small enterprises, encouraging private capital to set up financial institutions, channeling financial capital from Hong Kong, Macao and Taiwan into the local financial system, and attracting banks, especially those from Taiwan, to set up branches in the city.

The Fujian provincial government has also proposed to let two foreign banks establish their branches and set up one joint-stock bank in the province, the China Securities Journal reported earlier in August.

Quanzhou is well-known for its private enterprises. For the past 30 years, private businesses grew at an annual rate of more than 30 percent. By the end of 2011, it had accommodated about 130,000 private enterprises, with 77 listed in the stock market.

"The city has a large amount of private capital, and it's essential to reform the local financial system to allow such capital to play a bigger role in the local economy," said Huang Shao-ping, mayor of Quanzhou.[Hong Kong Company Formation|Hong Kong Company Registration]

Compared with its two counterparts, the focus of the pilot zone in Quanzhou is emphasizing better use of capital from Taiwan and overseas Chinese communities, said analysts, based on its geographical proximity to the island and its close ties with overseas Chinese communities.

Quanzhou is the hometown of 7.6 million overseas Chinese. Capital from those Chinese and local private capital may amount to 2 trillion yuan ($317 billion), Huang said.

The plan encourages this type of capital to set up lenders, holding shares in local enterprises, and establish investment funds. Special policies facilitating trade, investment and currency exchange will also be announced, it said.

"Regional financial reforms that have been kicked off this year have been widely recognized as touchstones for a nationwide financial overhaul," said Peng Xingyun, a financial researcher at the Chinese Academy of Social Sciences.

"Through such programs the financial supervision responsibilities between central and local governments could be better redefined, and the financing difficulties of small businesses are expected to be alleviated."

Peng said there are some concerns over such pilots, however, fearing the "local to central" reforming path cannot break through the existing regulatory framework, and might trigger a loosening of financial supervision.[Hong Kong Company Registration Guide]

The financial reform should pay close attention to pilot programs at a local level, as unbalanced development across China would dampen the determination of top policymakers when they try to implement certain measures nationwide, said central bank Governor Zhou Xiaochuan earlier this month.