China will encourage State and private investment in business startups, especially those in the high-tech sector, to help finance new business and innovation, according to a State Council guideline released on July 27.

The country will establish subsidiary funds to invest in startups, according to a guideline on promoting the innovation-driven strategy and mass entrepreneurship.

The funding consists of the national venture capital fund for emerging industries, which was founded in 2015 with 40 billion yuan ($5.84 billion); the national development fund for small and medium-sized enterprises; and the national fund for transforming technological achievements.

The guideline said standards and rules will be reformed for government funds and State-owned capital to invest, manage and exit venture capital, with an assessment system set up in line with the new rules.

Preferential tax policies, given to startups and individual angel investors, will be expanded to other areas as appropriate. The policies, released by the State Administration of Taxation in April, stipulate that 70 percent of total investment can be deducted from taxation two years after the investment for high-tech startups.

The guideline also encourages local governments to establish venture capital funds with certain management criteria. Commercial banks will be encouraged to establish inclusive financing branches to help small and medium-sized enterprises. Financial devices, such as bonds and equities, will be perfected for technological SMEs to provide full-life-circle services.

The work will be conducted by the China Banking Regulatory Commission, the National Development and Reform Commission, the Ministry of Finance and other ministries.

The central government has been promoting business startups and innovations that aim to boost employment and help transform the manufacturing sector. However, small startups have found it difficult to obtain financing.

It’s a systematic project to fix the dilemma for SMEs to get financing, said Guo Xia, a researcher of new economies at Peking University. New measures will help SMEs, in particular business startups, by helping them in the capital market and giving preferential fiscal and tax policies, he said.

Inclusive financing will change the reluctance of major banks to grant loans to startups, considering their small size and uncertain prospects, said Zhu Lijia, a professor of administrative reforms at the Chinese Academy of Governance.

Zhu said some places such as Shenzhen, an industrial hub in Guangdong province, have seen the benefit of better financing technological startups. “The document will stimulate local governments to provide assistance for technological startups,” he said.

The new guideline was also in line with Premier Li Keqiang’s commitment to reduce taxes and fees charged on companies, Zhu said. “If properly implemented, the guideline will help SMEs and business startups in the future,” he added.