Officials deny retreat from development

Official commentators and economists have denied the decision to bail out state-owned enterprises is a retreat from market reforms.

The semi-official Hong Kong China News Agency said yesterday that in the first half of this year the banking system granted 100 billion yuan (HK$93 billion) more in loans than the same period last year.

Funds made available to the nation's 300 top enterprises accounted for up to 80 per cent of the increase.

'It is both necessary and timely for the Government to ask state banks to support the reform and development of the 300 large and medium-scale state enterprises,' the news agency said.

A shortage of funds was one of the main reasons why the government-owned factories and mines had lacked vitality and been slow to react to the market.

More funds would be channelled into the state sector this year, it said.

In recent conferences on reform, Chinese economists have said that the loosening of credit did not contradict the policy of ensuring banks and enterprises operated according to the rules of the market.

'Enterprises have to repay the loans in good time, and guarantee the efficient use of the funds,' the agency said.

Losses sustained by state-owned business units last year were more than 20 per cent that of 1994.

It is understood that the reform of the state sector is top on the agenda of high-level conferences that will take place in the north China resort of Beidaihe next month.

Liberal scholars have criticised the Government for scaling down plans to transform state-owned enterprises into share-holding companies.

They said Beijing's decision to selectively relax the tight monetary policy was motivated by political factors including the fear of social unrest and strong lobbying by state entrepreneurs.

In internal documents, the leadership has warned that laid-off workers in areas including the northeast are a major threat to political stability on the mainland.