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Madame Chen, who runs a private, 16-person firm making shirts in Shanghai, has had her bank loan applications rejected twice since late 2007, when the government announced it was shifting to a tight monetary policy.

“They told me the bank’s loan quota had been allocated to more important projects — they said they had to cancel many credit plans late last year,” Chen, a 49-year-old state firm manager turned private entrepreneur, told Reuters.

Cheap and easy money, which helped fuel China’s economic boom this decade, is moving beyond the reach of a growing number of companies as the central bank tightens monetary policy and enforces curbs on new bank lending to fight inflation.

Chen’s company, for one, needs 600,000 yuan ($83,500) for working capital. But since the middle of last year, banks have shifted their focus to big clients which borrow at least 50 million yuan, she says.

The tight policy is contributing to a stock market slide as firms sell equity holdings to raise money, and threatens to boost bad debt at banks as small real estate developers struggle http://payday-badcredit.com. It also makes it hard for small banks to get money market funding.

So far, the policy has done little to slow growth in the overall economy — many bigger companies and banks, with good political connections and strong relationships to the top state-run banks, still have ample cash on hand.

But the pain being suffered by many thousands of small company managers like Madame Chen — and the additional pain that could result from a threatened U.S. recession — may force China to soften its policy in coming months, analysts believe.

“Conditions for corporate financing are set to be very harsh in the first half of this year, and that doesn’t take into account the impact of the latest developments in the U.S. subprime crisis,” said economist Shi Lei at Bank of China. 

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