Premier Zhu Rongji has warned of severe ecological damage if local officials continue to move families displaced by the Three Gorges Dam up mountainsides. Soil erosion would accelerate and ecology in the Yangtze Valley would suffer irreparable damage, Mr Zhu told a Beijing conference last week. The Government was adjusting its resettlement policy and strategy in relocating businesses, according to the Premier. The Three Gorges project would soon enter its second phase, involving the resettlement of more than 500,000 people. Officials must stop terrace farming, opening up virgin land in the Yangtze Valley and moving families up slopes steeper than 25 degrees, Mr Zhu was quoted by the China News Service as saying. Instead of relocating factories and mines, the majority would be closed down because they were 'obsolete and outdated'. The factories rolled out goods and materials which had no market, he said. 'Except for the few which produce goods which are productive and marketable, we must be firm in closing all those outmoded enterprises,' Mr Zhu was quoted by Xinhua as saying. 'If we relocate these factories and mines elsewhere, we will only create more [financial] losses and new sources of pollution. 'We will then be adding burdens to the people who live in the valley.' Mr Zhu said the central Government would compensate local governments 'appropriately' for losses to their tax revenues. However, the Premier was short of ideas on how to absorb the hundreds of thousands workers who would lose their jobs because of closures, except for suggesting that some might have to return to farming.