from The Australian, 1999-Sep-24, by China correspondent Lynne O'Donnell:

China curbs privatisation

CHINA yesterday ruled out large-scale privatisation as an option for overhauling the loss-making public sector.

The Communist Party's central committee instead vowed to expand, rather than reduce, the State-owned sector as the cornerstone of socialism in the world's most populous country.

"We will by no means pursue privatisation," the People's Daily, newspaper of the Government, said in an editorial.

"To enlarge China's economic and defence capabilities and reinforce the unity of the people, the State-owned sector should always be expanding and growing stronger," the newspaper said.

Managers at State-run enterprises were instructed to master technological advances in order to lead their companies into the 21st century.

The editorial follows a key plenum of the central committee, when it rubber-stamped decisions made at a seaside congress last month on the future of a wide-ranging economic reform program for the State-owned sector, inaugurated in late 1997.

Soon after the original plans were announced, Zhu Rongji was appointed Prime Minister and promised a radical overhaul, aiming to stem the flow of red ink by a series of mergers, bankruptcies and stock market listings.

The country has close to 300,000 State companies, which last year made a profit of $10 million – but only after a government subsidy of $30 billion. Total bad debts carried by the public sector are conservatively estimated at $300 billion. New credit policies forcing government-run banks to make realistic risk assessments on lending have strangled the flow of cash that had kept the State industrial sector alive.

Large-scale redundancies that are part of Mr Zhu's plan have led to huge unemployment in the rust-belt provinces.

The Government estimates the number of jobless at 5-7 million. Independent economists say the figure for unemployed and under-employed is more realistically around 250 million.

As it prepares to celebrate its 50th anniversary in power on October 1, the party's priority is to present China to the world as a bastion of social, political and economic stability.

This has meant huge public spending, including National Day cash bonuses to the unemployed and retired, many of whom have been left penniless by cash-strapped companies.