CHINA plans to clear the billions of debts facing the state-owned enterprises to help enliven their operation under a bold drive to establish a modern enterprise system by the end of this century, according to official reports. The State Economic and Trade Commission (SETC) in an article carried in yesterday's People's Daily said the central Government would ''clear and relieve'' the debt burden on state-owned firms which were incurred by erroneous policies in the past and other ''historical reasons''. This would enable them to compete on the same basis with others in the market, it said in a lengthy article on the establishment of a modern enterprise system. The so-called triangular debts of state-owned enterprises have soared again in the past few months as credit tightened under the austerity programme introduced by the central Government in July. Noting the causes for the debts of enterprises were complicated, the SETC said those brought about under China's bold market reform should be distinguished from those that were caused by mismanagement. ''If the financial strengths of the state allow, the central Government should clear the debts which have been brought about by the policy change,'' it said. Except for those debts that were a result of mismanagement, the ministerial-level body said the central Government would take various measures to rearrange the payment of their debts. The measures include cancelling interest owed on the outstanding debts and deferring payment. But those who have suffered losses for a long period of time, whose total debts were larger than their total assets should go bankrupt, the SETC said. It indicated that the setting up of a modern enterprise system would be conducted through introducing pilot schemes in firms and step-by-step during the next seven years. The SETC said the state-owned firms would be turned into various different entities such as share-holding or joint-stock concerns. But it maintained that the state would keep direct control and supervision over a small number of state-owned firms. This was because the business of those firms involved national security, defence, high-technology, ''designated trades'' and ''the production of special products''. The state could also restructure some medium and large-size state-owned firms by absorbing funds from other sectors, it said, but added that the central Government should maintain the controlling shares. A batch of cross-province and cross-trade enterprise groups should be set up to facilitate reform over the overall industrial structure and to improve the efficiency and development of sophisticated technology in industries, the SETC said. The enterprise groups would help enhance the competitiveness of Chinese firms in international market, the SETC added. The commission said the plan to corporatise state-owned firms should only go ahead after feasibility studies were made.