A TOP Chinese economic agency has called for pumping more money into state-owned companies so they can pay off their debts, but warned the move could spark inflation. The State Statistics Bureau proposed priming the pumps of state companies after production growth slowed to 2.2 per cent in the first quarter compared with a year ago, the China Business Times reported. ''The excessively sharp drop in state enterprises' growth must be reversed,'' the paper quoted the bureau as saying. The bureau said the state would have to direct its money with ''extreme care'' to the most efficient firms to avoid aggravating inflation, which soared to 20.1 per cent in the first quarter. Nearly half of all state companies were suffering losses by the end of March, up from just over a third at the start of the year, the bureau said. It said loans should be made so ''the successful win and the inferior are eliminated,'' the newspaper reported. The country's steel business is so bad that the People's Daily reported Chinese steelworks were 60 billion yuan (about HK$53.46 billion) in arrears paying their suppliers by the end of February, up 146 per cent from a year earlier. They in turn were owed 42 billion yuan by their customers. A Ministry of Metallurgical Industry report quoted by the People's Daily said the ''absolute majority'' of steel makers were in the red. Late last year, the government eased a tight credit policy designed to curb inflation, largely because the debt problem threatened the ability of state enterprises to pay their workers. Many of the emergency loans these companies got, though, were used to finance questionable expansions. On Sunday, the China News Service reported that even Beijing's Shougang Corp, a model state company which has been aggressively investing overseas, could only pay wages in February by getting bank loans. Last weekend, Vice-Premier Zhu Rongji warned state firms in the northern province of Heilonjiang not to expect loans to clear up their debts if they had wasted previous funds on questionable construction projects, the Economic Daily reported.