HUHHOT's state-owned enterprises have given their employees a stark choice. Either lend their employers money or production must be cut to a half-day shift to stay afloat. 'Inner Mongolia Woollen Fibre Co has borrowed money from its employees,' a director at Huhhot's economic commission Wang Xiaocheng said. 'State enterprises have also been making short-term loans to each other because of the credit tightening,' he said. To cut operating costs, one textile enterprise reduced production to a half-day shift, said Bao Shan, deputy chief of Inner Mongolia No 1 General Woollen Mill. The temporary measures, designed to ease the credit crunch sweeping China, resolve only a small number of problems facing Huhhot's ailing state sector. With a combined three billion yuan in assets, Huhhot's 159 state enterprises make up 60 per cent of the city's total industrial enterprises. As of July, the state sector has a combined account receivables - money owed for goods delivered - of more than 600 million yuan and account payables - money not paid - of 400 million yuan. 'With account receivables making up 20 per cent of the total assets of the state sector, the figure is not low,' Mr Wang said. China Huhhot Machine Tool Accessory Plant, for instance, has account receivables of 50 million yuan and account payables of 10 million yuan, says the plant's chief of party office Feng Linqun. Account receivables made up almost half of its sales of 110 million yuan last year. Taxed profits in 1994 were 16 million yuan. The maker of chucks, a machine tool accessory, is one of Huhhot's better-off enterprises, being picked as one of eight enterprises to experiment with modern enterprise reform. With an output of 270,000 chucks, the plant claims to be the world's largest maker of the manual-controlled chuck. However, the stability of the manual-controlled chuck is far better than that of computer-controlled chucks. Computer-controlled chucks have yet to make successful inroads into China. Up to 80 per cent of the machine tools are still manually controlled. State-owned enterprises have been hit hard by China's move to squeeze credit under the austerity policies aimed to rein in inflation and slow growth. Also heavily-laden with debts is No 1 Woollen Mill and Inner Mongolia No 3 General Woollen Mill. Each has account receivables of about 30 million yuan. The two plants are the city's major woollen mills which the city government aims to turn into woollen conglomerates. By incorporating smaller woollen companies in the city, the government hopes to build up the city's woollen industry - one of its backbone industries. Inventories also cause a headache. There have been 600 million yuan worth of inventories since July, says Mr Wang, representing about 7.6 per cent of the city's gross domestic product of 7.8 billion yuan in 1994. 'With redundancy becoming serious at Huhhot's state sector, efficiency has been lowered and production costs are spiralling,' vice-director at Huhhot's commission for restructuring the economic system Wen Bingyi said. No 3 Mill assistant director Gao Zhiying said they could have cut 1,500 redundant workers in the enterprise reform. No 3 Mill has a workforce of 3,000. 'Although we can remove workers, we try not to do so because this will exert pressure on the community,' he said. China does not have a social security system, and workers' welfare has long been shouldered by enterprises, who took care of workers from birth to death, through sickness to retirement. 'Our boss used to say that we have to keep workers alive and now he said we have to keep them hard-working,' he said. 'The road is bumpy in state enterprises' move from a planned economy to a market economy,' Mr Gao of No 3 Mill said. 'The government used to be in charge of everything from production to raw materials. 'But now we have to be responsible for ourselves; we have to market our products on our own,' he said. An increasingly tougher working environment has forced enterprises to merge with others for synergies and sup-port. Inner Mongolia Television Set Factory is one example. The TV set manufacturer has hooked up with Caihong Electronic Group of Shaanxi province in its ambitious expansion drive to increase production capacity to one million TV sets a year. The TV maker now only has a production capacity of up to 400,000 sets a year. Caihong, one of the key enterprises under the Ministry of Electronics, has incorporated the Inner Mongolia TV maker into its umbrella, turning the company into one of its subsidiaries. The TV factory director Zheng Weian said the tie-up with Caihong technically involved the transfer of state assets instead of share acquisition or takeover by Caihong, which has total assets of five billion yuan. Last year, it recorded sales of 500 million yuan, with profit of 10 million yuan. Another way of revitalising state enterprises is to turn them into shareholding companies and float them on the country's stock exchanges. Inner Mongolia Yili Industrial Co is the first in the region to transform into a shareholding entity, said Hu Sudong, Yili's director of the general manager office.