THE Communist Party is faced with an uphill battle to rejuvenate ailing state-owned enterprises. Outdated machinery, poor management and the huge pension bill for retired workers are among the chronic problems faced by state-owned firms in the northern province of Hebei, of which about one-third are running in the red. Officials admit issuing shares to promote growth is easier said than done. They are aware that only the fittest will survive under the quasi-capitalist economy. Factory managers are saying they have to emancipate their minds, alter management styles, inject an element of competition into their operations and, more importantly, bring in foreign investors. The vice-president of the North China Pharmaceutical Corporation, Liu Shouwen, believes the old contract responsibility system does not work in the long-run. ''The system no longer meets the new circumstances. We decided to practise the share-holding system. Shares were issued to workers to absorb funds for development. ''It is of paramount significance to turn idle funds into production in the development of a market economy,'' Mr Liu said. He also revealed the firm planned to issue shares on the Shanghai Stock Exchange in August. If it succeeds, the pharmaceutical firm in Shijiazhuang, the capital of Hebei, will be the first in the province to be listed. Mr Liu said the company had formulated plans to enhance competitiveness before the listing plan. It has also had to plan ahead to develop its own products following the signing of a Sino-American deal on the protection of property rights, which included some of its products. ''We hope that we will succeed in developing one or two new products by spending 100 million to 200 million yuan [HK$134.9 million to HK$270 million] on product development. ''This will strengthen our competitiveness in world markets,'' Mr Liu said. He said the share-holding system would enable the firm to have greater flexibility for development as profits could be re-invested. But employees had yet to fully understand the system. Neither had government departments established a system to cope with the changes in the operation of state-owned firms. Meanwhile, the Tangshan Pottery Factory, which is the oldest state-owned firm in the province, also has a long way to go to rejuvenate its operation. The factory's director, Rong Chengrui, said: ''The burden on old enterprises is heavy. Retired workers have comprised one-quarter of our total of employees.'' He said state-owned firms had suffered a heavier tax burden compared with joint ventures or rural enterprises. Mr Rong said the company was willing to sell its factory, built in 1914, to foreigners if the deal was good. But there was still some psychological resistance from cadres to the plan to put state-owned firms into private hands, he said.