More than 20 large state firms in the northeast city of Shenyang are refusing to repay debts of more than 20 billion yuan (HK$18.87 billion), pushing the ratio of non-performing loans in the four big state banks to 34 per cent, an official newspaper said yesterday. The report in the 21st Century Business Herald was a vivid example of how state firms in China avoid paying back loans and how the banks are virtually powerless to force them to pay. The 21 companies, in sectors such as textiles, machines, chemicals and water pumps, owe 20.29 billion yuan to the four banks - Industrial and Commercial Bank of China (ICBC), Bank of China, China Construction Bank and Agricultural Bank of China - amounting to 5.8 per cent of their total loan portfolio in Liaoning province. In April last year, the Shenyang branch of the central bank set up an investigation team with officers from the four banks to try to force the companies to pay. The 21 companies have chosen a common approach to avoid the debt - hive off their good assets and use them to set up a joint venture with an outside firm, leaving their bad assets and other liabilities in a separate company with little or no income. The Shenyang Textile Factory is a case in point. Established in 1923, it has a production capacity of 88,300 tonnes per year and a site of 117,800 square metres. In 1998, it split the company into two units. In June that year, one unit set up a joint venture with Beijing Yintai Property Company, to which it contributed 40 per cent in the form of land and the Beijing firm contributed 60 per cent in the form of capital. The other unit is legally responsible for the original debts which total 700 million yuan. The Shenyang Storage Battery Company followed a similar strategy. In August last year, it set up a joint venture with Hong Kong Guangyu International Science & Technology Group, a company registered in April 1999 in Bermuda. The Shenyang firm holds 35.5 per cent and the Hong Kong party 64.5 per cent of the venture, which employs 800 people. The venture is running profitably in the production of storage batteries and enjoys the privileges accorded to a foreign-invested joint venture. The liabilities of the company, including 200 million yuan in bank debts and obligations to 1,380 retired workers, remain with the original firm. Bai Jinghui, an asset management officer with ICB, said the strategy was typical of the state firms that refused to pay their debts. 'The original firm has obviously no ability to repay the nearly 200 million yuan it owes us. We have already issued a final warning to it, with a time limit. If it does not pay, we will apply for the company to be cut off from financing from all banks,' he said.