China plans to establish a way of evaluating the performance of State companies by 2010 in a bid to deal with low efficiency in the sector, said a senior official in Beijing Sunday.

Up to now, 187 State-owned enterprises (SOE) have signed performance contracts for the year 2004 with their watchdog, the State-owned Assets Supervision and Administration Commission (SASAC).

The establishment of performance evaluation mechanism has been going smoothly, said SASAC official Li Shousheng at a forum on SOE reform.

According to government statistics from 1998 to 2003, the number of state enterprises dropped from 65,000 to 37,000, but the total assets of SOEs increased by 950 million yuan (114.8 million US dollars) and the debt rate of state assets dropped from 64.3 percent to 59.3 percent. The profits of the state sector rose from52.5 billion yuan (6.3 billion US dollars) to 378.4 billion yuan (45.7 billion US dollars).

Even so, low performance efficiency remains a major problem in China's state companies. In 2003, the average profit rate of net assets was only 5 percent in state companies. About 10 percent of state companies face deficits.

Li said that lack of performance evaluation is a major cause of profit loss.

On November 25 last year, China issued a provisional regulation on performance evaluation of state enterprises, which is considered a mechanism innovation in management of state assets.

As an important force in China's national economy, state enterprises play a dominant role in such sectors as oil, telecommunications, aviation, power, steel and auto industries.

(Xinhua News Agency December 20, 2004)