A confidence index tracking small and medium-sized companies in China fell into negative territory in the third quarter of this year as the SMEs grew cautious about the country's economic growth and monetary policies.

The SME index, compiled and released for the first time by Standard Chartered Bank and covering nearly 1,500 firms across the mainland, was 47.37 points for July to September, below the 50-point level that separates contraction from expansion.

Over half of the respondents believed the country's economic growth will further slow in the fourth quarter and a sub-index of confidence in China's macro-economic prospects stood at 33.13.

The SME owners were also less confident about their access to funding as was shown by another sub-index which stood at 38.60.

The difficulty of getting loans became a sensitive issue after several company bosses in China's entrepreneurial capital of Wenzhou in Zhejiang Province fled when they failed to repay high-interest illegal loans. The State Council, or Cabinet, yesterday promised that state-owned banks will lend more to small firms that have turned to unlicensed lenders after regulators tightened access to credit to cool an overheated economy.

A sub-index that tracks SME owners' confidence in their business operations stood above an average of 60 in most parts of China, except in the eastern region - a contrast to concerns over slower growth and tighter credit policies.

By the end of 2008, SMEs accounted for 60 percent of the country's gross industrial output value and 60 percent of the export industry, the bank said.