THE future of China's most dynamic sector - rural enterprises - hangs in the balance. A Hong Kong China News Agency report identified potential problems as weaknesses in structure, reliance on big enterprises, mismanagement, outdated technology and low-quality products. The report attributed the success of village and township enterprises over the past 15 years to the ''ossification'' of state-owned firms' operation and management structure. Paralysed by constraints such as direct control by administrative authorities and lack of planning, state firms had failed to adapt their operations to market forces, it said. ''Of course, they [state firms] will not be able to compete with rural enterprises which are able to make prompt changes in accordance with the needs of the market,'' the report said. But the news agency was optimistic that a forthcoming revamp of property ownership and management of state firms would enliven their operation. The ''crises'' facing rural enterprises would become more acute after state firms were allowed to operate with greater autonomy, it said. The news agency cited a senior official as saying that the pace of development ought to be slowed down for rural firms, to concentrate on improving efficiency and quality control. According to a survey published in yesterday's China Daily, the booming rural sector is also facing criticism from some quarters for increasing pollution across the country. The newspaper quoted the National Environment Protection Agency as saying that rural enterprises were responsible for pumping out massive amounts of industrial effluent and sulphur dioxide fumes. The findings were the result of an unprecedented five-year survey covering 570,000 rural enterprises throughout China. It is aimed at helping central and local governments improve pollution control by identifying the worst offenders. According to the survey, the discharge of industrial effluent around the cities of Tianjin, Shanghai and Beijing and in the worst-hit provinces of Hebei, Shandong, Henan, Shanxi, Jiangsu and Sichuan accounts for almost 60 per cent of China's total township water pollution. The rapid growth of China's rural economy has been attained at the cost of neglecting safety standards and environmental protection. By the end of last year, village and township enterprises numbered 21 million and employed about 112 million people. The agency survey found that there was only one environmental protection officer for every five rural firms and only 20 per cent of the enterprises reached state standards for water waste disposal.