The Shanghai municipal government unveiled a plan on Wednesday that will create incentives for foreign private equity and venture capital funds to invest in early-stage technology companies in the city.

One element of the plan is a $1.5 billion quota under which foreign funds can invest in the equity of high tech companies in the city. The People's Bank of China and the State Administration of Foreign Exchange have already approved the quota. The plan also calls for other unspecified incentives to attract famous private equity and venture capital funds to invest in China.

A related element of the plan is the approval of a joint venture between U.S.-based Silicon Valley Bank Ltd and Shanghai-based Pudong Development Bank. The bank, which received formal approval in October, will formally open for business sometime in the first half of 2012, said Jiang Mingsheng, vice president of Pudong Development , at a news conference in Shanghai.

The measures announced on Wednesday are part of a broader effort by the Chinese government to diversify its economic growth model away from low value added manufacturing and towards technology and what officials have termed indigenous innovation.

Officials are aiming to expand access to credit for small- and mid-sized tech companies, which often find it difficult to access bank loans.

A particular goal of the plan is to target early-stage tech companies, which have had more difficulty attracting domestic and foreign capital than their larger peers. The Shenzhen Stock Exchange launched its Growth Enterprise Board in 2009 with similar goals in mind.

The new policies may create new opportunities for foreign private-equity funds. TPG Capital established a yuan-denominated fund in partnership with the Shanghai government in 2010. Blackstone, which established Shanghai-focused fund yuan in 2009, closed its first round of funding in April.

The Shanghai government's plan also calls for the issuance of specific regulations under which groups of small and medium-sized firms may collectively issue bonds or receive entrusted loans. The plan also encourages the establishment of loan guarantee companies that share with commercial banks the credit risk arising from loans to small high-tech companies.

(Reporting By Gabriel Wildau; Editing by Jacqueline Wong)