BEIJING – An arm of a leading global think tank on environment is considering setting up a special fund to aid China's small- and medium-sized enterprises (SME) in the environment sector.

"We plan to investigate the feasibility of running such a fund in China in the next two years," said Zhang Tao, chief operating officer of New Ventures, a program at Washington-based World Resources Institute.

"It is very difficult for those environmental SMEs to get investment for further development," said Zhang whose agency has been offering strategic support to environmentally focused entrepreneurs in emerging economies since 1999.

According to Zhang, around 60 percent to 70 percent of the such firms in China cannot survive their first five years due to a lack of fund, prompting his agency to mull providing financial help to those investment-hungry firms.

"Some of these firms actually have good ideas or have high-quality products," he said.

The light-asset strategy of typical environmental SMEs is one of the main reasons that they can hardly get loans from banks.

"Environmental SMEs usually put everything they have into research and development, nothing left to mortgage to the bank, "said Wang Hui, deputy general manager of SME business with Bank of Communications' Beijing branch.

Private equities (PE) and venture capitals don't fall for them either. Profit-driven PEs usually chase after companies mature enough to go into initial public offering.

It is too risky to invest in SMEs, said Ran Tao, vice-president of Hanfor Capital Management Ltd "There are so many environmental SEMs in China and most of them are at their early stage. You don't know which ones can bring profits," he said, adding his firm targets companies that are ready to list their shares at a stock exchange.

"PE's money doesn't go to those companies which are at their stage of development. That's why we feel that there is a strong demand for us to set up a fund to help companies in the missing middle, which are neither big enough to get loan from banks nor strong enough to get investment from PEs," said Zhang from the New Ventures.

Since entering China in 2003, New Ventures has offered business services to around 400 environmental SMEs, aiming to help them develop successful businesses and securing investment to spur growth.

Through the company, more than 20 Chinese enterprises have got $150 million from various investors.