“There have always been people running away because they couldn’t pay their debts,” said Wang Yuecai, general manager at Wenzhou Yinfeng Investment & Guarantee, which guarantees state bank loans when small businesses are lucky enough to get them. “But recently, the situation here has gotten much worse.”

Last week, Prime Minister Wen Jiabao and a delegation of top officials, including the head of the nation’s central bank, visited Wenzhou, promising to get official banks to lend more to small companies and to crack down on underground lenders that charge high interest rates.

And on Wednesday, China’s state council, or cabinet, announced a series of measures aimed at helping small businesses with tax breaks and new lines of credit.

Beijing no doubt worries that similar problems could surface in other parts of the country.

“This is not just happening in Wenzhou,” said Chang Chun, who teaches at the Shanghai Advanced Institute of Finance. “Some companies borrow from the state banks and then lend into the underground market. Many are doing this type of arbitrage.”

But caging the loan sharks could prove difficult, not only because the activity is so rampant but because the lending is in some ways a result of the government’s own banking policies.

Here in Wenzhou, known for its pen makers, textile producers and big cigarette lighter factories, business owners complain that they are struggling with inflation and rising prices for raw materials. But they also point to a government-created credit squeeze. As elsewhere in China, most bank loans in Wenzhou go to big corporations or to finance projects backed by the government, making it increasingly difficult for smaller businesses to borrow money.