BEIJING - Wenzhou has been given the green light to turn itself into an incubator for private capital distribution, China Securities Journal reported Saturday.

The city government's proposal to build itself into a pilot zone of financing services to help small businesses has been approved by seven central ministries and will soon get the State Council's nod, the paper under Xinhua said, citing unnamed sources close to the matter.

Wenzhou will set up a batch of non-governmental financing institutions on a trial basis, including micro-finance companies, private capital management companies and registering centers for private financing, a local official said when the city filed the proposal last October.

The proposal, which is aimed to expand financing channels for small and mid-sized businesses, came after a spate of credit-starved local private companies went bust last year.

Small businesses in Wenzhou had to borrow from underground lenders that charged interest rates more than 10 times the central bank's benchmark rates, after Chinese government tightened liquidity to clamp down on runaway inflation in 2011.

High borrowing costs pushed many companies into bankruptcy, and a string of business owners have disappeared or committed suicide, invalidating debts owed to individual creditors.

In the government work report delivered last week, Premier Wen Jiabao said China would lessen tax burdens on small and micro-sized businesses and increase credit support to them.