Wednesday's executive meeting of the State Council, China's cabinet, agreed to work toward a situation where bankrupt state-owned enterprises (SOEs) are no longer bailed out by the government.

The aim is to move further towards a socialist market economy, and to force SOEs to work to the rule of law and the realities of the marketplace.

Municipal and provincial authorities in Beijing, Shanghai, Jiangsu, Zhejiang and Fujian have already stopped the practice.

The government currently subsidizes a selected group of SOEs in extreme financial difficulties. In return, they are expected to properly arrange for laid-off workers' livelihoods.

By April 2004, 3,377 insolvent SOEs had been closed through administrative intervention and 6.2 million employees resettled. The government had allocated 49.3 billion yuan for SOE bankruptcy subsidies and allowed state-owned banks to write off a total of 223.8 billion yuan in bad loans.

Li Rongrong, minister in charge of the State-owned Assets Supervision and Administration Commission (SASAC), said earlier that the period of transition from policy-aided bankruptcy to bankruptcy according to law would take about four years.

The State Council meeting, chaired by Premier Wen Jiabao, also approved a program in principle dealing with the closure and bankruptcy of SOEs, a program on rural highway construction and draft regulations on the supervision of the electricity sector.

The meeting urged all agencies to handle the closure and bankruptcy of SOEs strictly in line with legal procedures to prevent the loss of state assets, protect the legal rights of workers and properly handle debts.

"Meanwhile, enterprises with the right conditions are encouraged to merge with others," stated meeting members.

(Xinhua News Agency February 3, 2005)