Beijing appears to have made a U-turn in its policy towards loss-making state-owned enterprises by ordering commercial banks to boost lending to the troubled sector. In a reflection of Beijing's growing concern about unemployment, the Financial News reported yesterday the People's Bank of China (PBOC) had issued an edict calling for more financial support for ailing state firms. It said commercial banks should provide more working capital loans for loss-making state companies with marketable products and export orders. This is an apparent retreat from Premier Zhu Rongji's plan to overhaul the state sector and help banks allocate capital more efficiently. The new edict came as Finance Minister Xiang Huaicheng warned yesterday that poor operations at state-owned firms had already had an adverse impact on the country's budget revenues. State revenue rose 7.7 per cent between January and May against the same period last year, below the 10.2 per cent target for the year, Xinhua news agency quoted Mr Xiang as saying. Expenditure grew 12.8 per cent over last year, instead of the 7.2 per cent expected. Mr Xiang said the Asian financial crisis had also put a severe strain on the budget. Other reasons given included lax taxation, insufficient domestic demand and sluggish growth in the economy. Last September, Beijing launched an unprecedented drive in which the government would only take care of big state firms while letting go the tens of thousands of smaller state firms in the forms of bankruptcies, stock sales, and mergers and acquisitions. Mainland commercial banks, instructed earlier this year by the central bank to apply stricter credit checks on new loan applicants to curb financial risk, have been reluctant to lend money to ailing firms with less chance to repay loans. The circular also urged government departments to help loss-making state firms find guarantors for their borrowings and reduce administrative fees, the newspaper said. Senior Beijing officials have recently raised concerns about a dramatic increase in laid-off state workers, casualties of the reform process which have become more painful amid slowing economic growth as a result of the continuing Asian financial turmoil. The PBOC last month called on commercial banks to boost lending this year to smaller firms as part of a package to stimulate the faltering economy. Authorities also urged banks and state firms to tighten controls on bank loans to curb misuse, it said. Ailing state companies were banned from applying for bankruptcies before bank loans had been repaid, it said, without giving further details.