China loses lame ducks

The Chinese minister in charge of ambitious plans to reform and privatise the country's state industrial sector yesterday said it was "a must" to establish a system of "survival of the fittest".

Wang Zhongy, head of the state economic and trade commission, outlined the principles for the streamlining and privatisation process announced last week, blaming "over-staffing, heavy debts and social burdens" as some of the problems besetting China's 300,000-plus state-owned enterprises.

Mr Wang said the government will focus on a small number of "key", large enterprises while "liberalising" control over smaller firms. The motto is: "Take hold of the large ones and let go of the small ones."

One-third of China's hospitals and schools still belong to state-owned factories and firms, offering virtually free healthcare and education for the millions of workers who have grown up expecting to be taken care of by their employer. Much of this is now under threat.

Under the new scheme the state will "firmly control" such major industries as communications, transport, banking, finance and natural resources, while loosening its grip in other fields. Smaller state enterprises will be left to fend for themselves and will be encouraged to consider mergers, leasing, bankruptcy, conversion to shareholding companies, outright sale and closure.

A pilot scheme has earmarked 512 "priority" large enterprises for reorganisation.This represents less than half 1 per cent of the total number of industrial state-owned enterprises, but because of these are the biggest units they account for more than half the total assets and sales of the state industrial sector.