China will budget 11.5 billion yuan ($1.84 billion) this year for a special fund to support small and medium-sized enterprises (SMEs) as they face rising production costs, weak market demand and difficulty in obtaining financing, officials of the Ministry of Industry and Information Technology(MIIT) said Tuesday.

The fund will be used to improve the financing environment and support innovation and international cooperation, Xu Kemin, deputy director of the SMEs department at MIIT, said at a press briefing on Tuesday.

Rising production costs, weak market demand and difficulty in obtaining financing are major obstacles facing SMEs, Zheng Xin, director of the SMEs department at MIIT, said at the same briefing.

According to Zheng, production costs have increased a lot in the last three years with labor cost rising the fastest, and increasing labor costs together with rising logistics and rent costs have squeezed SMEs' profits.

Zheng also said the difficulty of getting financing is a prominent problem that constrains the development of SMEs, noting that the problem is a global issue and will take time to resolve.

Small firms contribute more than 50 percent of tax revenues, more than 60 percent of GDP and 80 percent of urban jobs nationwide, data released by the MIIT showed Tuesday.

There were about 11.7 million small and micro-sized enterprises in China by the end of 2013, accounting for 76.57 percent of the total number of firms in the country, according to the data from the State Administration for Industry and Commerce early this month.

In the latest move to support small firms, Shenzhen Banking Regulatory Bureau announced Tuesday it would have more tolerance toward bad loans incurred by these enterprises by raising their bad loan ratio by 2 percentage points.

The Ministry of Finance and State Administration of Taxation (SAT) announced last month that any firm with annual taxable income under 100,000 yuan will have its business income tax halved from January 1 this year until the end of 2016. The SAT official also said earlier this month that small and micro businesses will no longer need approval from tax authorities to receive tax cuts if they are eligible for the 50 percent tax cut.

This followed an announcement by the State Council, the country's cabinet, in July 2013 of an exemption on business income tax and value-added tax for small and micro-sized enterprises whose monthly sales were less than 20,000 yuan.

Duan Honggang, general manager of Beijing Gongbo Coin Appraisal Co, a small firm that appraises ancient coins, told the Global Times on Tuesday that he is very disappointed with banks that never lend money to micro firms like his unless the firms have connections with banks.

Another problem facing his firm is that it is difficult to retain employees, even if he pays a higher salary than the average in the industry.