As part of its ongoing drive to rationalize and restructure its hundreds of state-owned enterprises (SOEs), China will close some firms and impose capital operation budgets on the survivors, said a high-level official in Beijing.

"The goal of the reforms is to reorient state capital away from poorly-performing companies in non-critical areas to priority sectors," said Shao Ning, Vice-Minister of the State-owned Assets Supervision and Administration Commission (SASAC) at a recent forum.

The SASAC will compile capital operation budgets for the 161 central SOEs directly under its supervision. The budgets of other SOEs will be compiled by the Ministry of Finance. This move will ensure that the utilization of state funds meets government criteria.

According to the SASAC, the central SOEs will lose the privilege of retaining their profits, which totaled US$75 billion last year.

They will be required to hand over some of their after-tax gains to the government. But Shao did not specify the proportion.

According to previous reports, SOEs supervised by state-assets administrations in Beijing, Shanghai and Shenzhen have already begun handing over 20 percent of their net profits to local administrations.

The state-assets administration may sell its entire shareholding in state companies engaged in non-critical sectors.

As of next year, the income of the state-assets administration will come from dividends and from the sale of shares, according to SASAC.

The overall goal of the administration is to allocate capital to companies in critical sectors where there is potential for development and help them expand.

The administration will grant funds to struggling state companies who cannot afford the cost of bankruptcy to help absorb the cost of lay-offs.

China has launched a four-year program to close 2,000 SOEs before 2008, with social security and reemployment major challenges to overcome in the bankruptcy process.

A SASAC official said last week that China had approved the bankruptcy of 619 companies and planned to let a further 500 struggling SOEs go to the wall by the end of this year.

(Xinhua News Agency December 13, 2006)