China risks being left with a rump of inefficient, unwanted state-owned enterprises (SOEs) that threaten to burden the government if it fails to fully embrace economic reforms, the World Bank says. World Bank chief economist for East Asia and the Pacific, Michael Walton, said China's rapid economic growth could be significantly constrained by a set of new issues emerging in relation to the reform of SOEs. There were already reports of worsening losses at SOEs, he said. He urged China to take immediate steps at a time when its economy was regarded as generally buoyant. The rapid growth of the mainland's non-state sector was not enough to mop up labour from the inefficient state sector, Mr Walton said. More pro-active measures were needed, he said. 'There is no hope that just having the state enterprise sector wither away is going to solve the problem,' he said. China's SOEs, financial system and tax collection were seen as the principal problems facing China's economy. 'But that is only the tip of the iceberg, and some of the real concerns are in the process of state enterprise reform,' Mr Walton said. He said this meant the good business being moved out of central government control, leaving it to concentrate on the bad companies. He suggested the solution was a two-track process: moving workers off the government payroll and implementing market-oriented social systems such as pensions. Mr Walton said Beijing was clearly aware of the need for SOE reform. He said he was cautiously optimistic that the government would take the necessary steps. Mr Walton said there was a wide range of experimentation taking place within China to reform the state sector. There was already evidence of a redeployment of labour into other industries and pension pooling at the city level. He said reform was needed immediately, while the economy was strong. 'As the Chinese Government has emphasised for many years, managing the state enterprise reforms is going to be central to economic growth, central to the evolution of the labour market, and central to the social situation,' Mr Walton said. The World Bank has been urging reform of state enterprises for several years, but recently its complaints appear to have become more urgent. China fears that if it reforms the SOEs too vigorously, it risks incurring a shock that could cause deep social unrest, and potentially undermine the government.