If there is any uncertainty on what is on the minds of Chinese politicians, three articles in the South China Morning Post on Tuesday may have cleared it up: 'Shanghai reforms to cost 400,000 jobs', 'Jobs axed as state firms face shake-up', and 'Guangzhou hit by mass lay-offs'. Eighteen years into its open-door and reform policy, China is finally tackling what has been acknowledged as the trickiest aspect of its economic modernisation - reform of the moribund state enterprises. Trickiest, because the reforms involve the livelihood of about 40 million surplus state sector workers - mostly in the cities - and any mishandling could trigger serious social consequences. Yet, without trimming a bloated sector that has become a drag on national resources, the Chinese economy cannot move forward. The success of state sector revival holds the key to speedy reforms in the banking, retail distribution, infrastructure and other industries. In other words, only when state enterprises are run on market discipline can the country truly claim to have succeeded in its open-door and economic reform policy. How long will it take to build a lean and dynamic state sector? That depends on province to province. In Shanghai, the municipal government is betting that a modern enterprise system and a mobile labour force will be in place by 2000. Shanghai deputy party and municipal general secretary Huang Qifan said to achieve the goal, the city must unload the three so-called 'historical millstones' of state enterprises - excess workers, high debt ratio, and cradle-to-grave social security obligations. There are about 100 million people working in state enterprises nationwide, and about 40 per cent are surplus workers, much higher than generally assumed. In Shanghai, as with most cities, the surplus workers are concentrated in the manufacturing sector. In 1990, the sector had a workforce of 3.6 million, which the city would now like to trim to two million to 2.4 million by 2000. To mitigate the social consequences of the lay-offs, the city last year began experimenting with re-employment centres to retrain displaced workers from the textile industry for new jobs. In the past six years, about a million workers have been made redundant and trained for new jobs. This year, more re-employment centres are to be set up to retrain redundant workers in the light industry, chemical, building materials, metallurgical, and machinery and electrical industries. This will inevitably lead to more mergers, acquisitions and bankruptcies in the industries which, in turn, will reduce the debt-equity ratio of state enterprises. Shanghai hopes the average ratio will come down to 60 per cent, from 67 per cent this year. 'If the debt ratio is too high, state enterprises are effectively working for the banks, not the owners,' Mr Huang said. Finally, in social security reforms, the obligations are now shared by three parties - the government, enterprise and the worker - instead of solely by the enterprise. If the measures are successful, not only will Shanghai have a dynamic state sector capable of competing with foreign companies, the prospects of its economy opening wider to foreign participation will brighten considerably.