Chinese Premier Wen Jiabao urged stronger financial support for cash-strapped smaller businesses, the state-run Xinhua News Agency reported on Wednesday, in the latest indication of the toll China's inflation fight is taking on its small and midsize businesses.

Mr. Wen made the remarks during his visit to China's eastern Zhejiang province on Monday and Tuesday, according to Xinhua. Zhejiang is home to numerous small entrepreneurial businesses.

Smaller enterprises should be a priority for bank credit and enjoy more tax preferences, Mr. Wen said, according to Xinhua. He added that banks should set targets for loans to small companies, reduce the cost of credit for them and allow them a higher nonperforming loan ratio.

To prevent the funding shortage from spreading, Mr. Wen also called for better regulation of private lending, Xinhua said.

While China's recent economic data suggest its economy is continuing to grow at a brisk pace, some investors have worried that the small-and-midsize-business segment is beginning to feel a funding squeeze. Seeking to tame inflation, Beijing in recent months has curbed lending and taken other steps to gradually slow the economy.

That has restricted funds available to some small businesses, which traditionally haven't had the same access to funding from China's biggest banks as do major state-owned enterprises. Seeing them as higher-risk, banks are reluctant to lend to smaller privately owned businesses, and usually charge them higher rates.

On Saturday, China's official purchasing-managers index showed manufacturing grew for the second straight month in September. But a PMI measure from HSBC Holdings PLC on Friday that's weighted more toward small and midsize businesses showed a contraction.

Analysts estimate such businesses in the private sector account for 80% of the country's jobs and more than half of economic output.

After a number of small manufacturers in the Zhejiang city of Wenzhou shut their doors in recent weeks, authorities in the city—long considered an incubator for such businesses—last week urged banks to free up funding.

Last month, Zhang Xiaoqiang, vice chairman of China's National Development and Reform Commission, told a conference that Chinese banks shouldn't reduce financing for cash-strapped small and midsize enterprises despite the Chinese central bank's credit-tightening earlier in the year. The commission is China's main economic decision-making body.