The International Finance Corp, the private investment arm of the World Bank, says the biggest challenge to China's privatisation drive is balancing local and central government interests. Incentives were needed at local levels to keep provincial and city economies growing through 'rejuvenating' state assets, it said. But there was real concern that assets were disposed of at discounts and losses, since the central government relied to a large extent on local officials, added Stoyan Tenev, the agency's chief economist for East Asia and the Pacific. 'The central government tends to go light on expenses [on this front] and depends on local governments,' he said yesterday. China's privatisation programme accelerated in recent years as Beijing allowed bigger foreign and private investor participation, allowing controlling stakes under World Trade Organisation terms. Over a six-year period from 1999, the proportion of state-owned assets in the mainland's industrial sector had shrunk by 28 per cent to 53 per cent, according to CEIC data cited in excerpts of a soon-to-be-published World Bank book, China's Ownership Transformation, co-written by Mr Tenev. During the same period, the proportion of state firms in the industrial sector fell from 37 per cent to just 15 per cent. 'This process of transformation of China's state sector has led to social unrest and will continue to be socially painful,' wrote Mr Tenev and co-authors from the Australian National University, China Centre for Economic Research, and Peking University. Since 1998, China has laid-off some 30 million state workers and as many as 8.7 million have not yet found new jobs. Still, Mr Tenev pointed out yesterday that the central government had introduced regulations to ensure 'social fairness and transparency in distribution'.