However, experts suggested that similar projects won't lead to a stable long-term way to handle private capital.

"Getting individuals involved in the State-owned railway project is a method to help private capital be applied more wisely, but not the best way to solve the financial situation in Wenzhou," said Liu Shengjun, executive deputy director of CEIBS Lujiazui Institute of International Finance.

Wenzhou was selected for the financial reform at the end of March after the outbreak of a financial crisis arising from widespread loan defaults by factory owners and investors.

Many local entrepreneurs failed to repay their debts, much of which came from underground lenders. Some of the borrowers were said to have fled abroad, leaving behind not only massive debts but also abandoned factories and unpaid workers.

The situation prompted the government to act with an overall plan to channel private funds that were largely lodged at underground banks to a properly regulated and supervised lending mechanism.

yuran@chinadaily.com.cn