TOWNSHIP and village enterprises, which have driven much of China's economy for the past 19 years - face structural barriers certain to impinge on the growth of what today stands as the mainland's most productive industrial sector. Over-production, triangular debt and competition from resurgent state-owned companies are some of the difficulties the mainland's rural firms face. Nowhere are these challenges more apparent than Wuxi in Jiangsu, arguably the most successful showcase for collective ownership. Last year, Wuxi's 14,350 township firms clocked growth of 9.2 per cent, a substantial decline from 32 per cent the year before. Wuxi's Bureau of Township Enterprises deputy director Zhu Shousong said it was the most sluggish year for the collective sector since Wuxi established its first township factory 40 years earlier. Flagging factory performance was exacerbated by the city's burgeoning accounts receivables. Of Wuxi's 142.3 billion yuan (about HK$132.62 billion) in factory sales last year, 17 per cent remains uncollected. Particularly hard hit were firms engaged in primary production for the domestic market, such as small scale steel processors, while companies manufacturing for export, particularly consumer goods, fared better. Mr Zhu believed several factors accounted for Wuxi's difficulties, including the same over-capacity faced by most sectors of Chinese industry, and increasing competition from a revitalised state-owned sector. Thomas Chan, head of the China Business Centre at the Hong Kong Polytechnic University, said the collective sector was being squeezed on both sides. 'The consumption boom that began in the late 1980s has ended and the state sector has been liberalised,' he said. 'The time when rural industries were able to expand quickly has ended.' Further evidence of a general decline in economic growth at the township level is found in slumping retail sales figures for consumer goods. Last year, growth in consumer goods sales at county level declined to 12.34 per cent, compared with 20.8 per cent at city level and 22.9 per cent at rural level. State statistics do not suggest economic growth at the mainland's township level has collapsed. The mainland's collectively owned sector continues to be the most productive in its economy, employing 135 million labourers in an estimated 23.4 million firms. Last year collectively owned industrial firms posted 16.7 per cent growth, producing 3.9 trillion yuan in gross industrial output value, or 39.39 per cent of the mainland's total, compared with state sector gross industrial output of 2.84 trillion yuan, representing 28.48 per cent of the total. After years of rapid expansion, township enterprises were undergoing a period of retooling and restructuring, Mr Zhu explained. 'What's important now is that township enterprises restructure and raise their economic performance,' he said. Restructuring has been under way at Wuxi, where in recent years 69 per cent of township enterprises have transformed their ownership systems. For loss-making or marginally profitable small and medium-sized collective firms, Wuxi has encouraged auction and enterprise leasing. Conversion to shareholding systems, involving the sale of assets in the form of shares, is also being employed.