AUTHORITIES in Beijing are engaged in a massive operation to weed out unscrupulous companies as part of the Government's crackdown on smuggling. Officials are investigating companies suspected of bringing in more goods - at low prices - than needed to make products for export, selling the surplus at higher prices domestically. The smuggling of goods using the name of processing enterprises to avoid paying import taxes is so rampant that authorities nationwide have been ordered to step up their efforts to catch the smugglers. In the first nine months of this year, more than 400 major cases of smuggling - through taking in more goods than needed - have been uncovered, according to figures provided by the General Administration of Customs. Close to three billion yuan (HK$2.8 billion) worth of goods were seized and unpaid taxes were 1.3 billion yuan. Many 'processing enterprises', most of them in Guangdong, either 'import without export' or 'import more than they export'. They make false contracts, stamps and signatures and there are no processing plants, equipment or workers to be found. A common practice is to exaggerate the amount of raw materials a firm uses. A survey by the Customs authorities found that up to 7,000 processing companies were involved - with 2,466 of them in Guangdong. The problem of smuggling by exaggerating output for export arose when China started its reforms. It began giving special treatment to those engaged in such trade to encourage the development of an export-oriented economy. Enterprises are allowed to import without paying taxes or applying for import licences. 'The policy and management of processing trade in China is the most relaxed in the world,' said Duanwu Jun, deputy director of the General Administration of Customs. The administration was said to be investigating 66 enterprises and 88 bonded warehouses which were found to have imported surplus goods. The lack of manpower and regulations were the main obstacles preventing the authorities from uncovering the more serious cases.