Ailing state enterprises are scrambling to go bankrupt and compete for the 30 billion yuan (HK$28 billion) that central authorities have allocated to help resettle labourers and debts of bankrupt firms. Although Beijing is determined to wipe out thousands of loss-making state firms unable to cope with competition and which are draining state coffers, mainland leaders have repeated that mergers, rather than closures and bankruptcies will be encouraged. 'Unemployment will inevitably surge drastically this year after mass bankruptcy,' Dong Fureng, a vice-chairman of the Financial and Economic Committee of the National People's Congress, warned. 'State enterprises of the 110 pilot cities chosen for enterprise reforms have queued up to file for bankruptcy applications. Many of them sought connections with the central authorities in order to jump the queue,' Mr Dong said. Loss-making firms account for 43 per cent of the state enterprises which total more than 20 million workers. Another 30 per cent of state enterprises are only making money through false accounting. These firms employ another 20 million workers. State enterprises have bank debts of more than 2,000 billion yuan. 'The 30 billion yuan allocated to help bankrupt firms is far from enough to settle the workers and debts of bankrupt enterprises. Leaders of state enterprises all want to take a bite of the cake,' Mr Dong said. Officials said financial problems of state enterprises were extremely acute this year. One senior state economic official said that in the first three months of the year, profits of state companies after tax could barely cover losses incurred by state enterprises. Re-employing millions of laid-off workers has become the country's top concern as growing numbers of loss-making state-run companies streamline and go bankrupt. Another serious problem is faked bankruptcy cases in non-pilot cities. 'State enterprises in non-pilot cities try to fake bankruptcies in order to evade bank debts,' the official said. 'It is obvious that local governments have encouraged such moves as they do not want to shoulder the debt burden of unproductive enterprises. Local governments have to be responsible for the interest of their heavy debts,' the official said. Such cases are particularly serious in inland cities. Central authorities are aware of such trends and have warned local governments they will be penalised.