China will step up efforts to regulate and withdraw undue subsidies allocated to State-owned enterprises (SOEs) to meet the commitments made for the World Trade Organization (WTO) entry two years ago, sources with the Ministry of Finance (MOF) revealed recently.

"The clear-up is a long-term campaign and is expected to end by 2005, the deadline according to the commitments, when all subsidies against WTO rules will be cancelled," Beijing-based China Business Post quoted an MOF source as saying.

The source also said the ministry is making a concerted effort to regulate "policy subsidies" and subsidies allocated to some loss-making enterprises.

"Policy subsidies" are compensational subsidies granted to offset losses of some enterprises caused by government-set low prices.

"Subsidies that are clearly banned by WTO agreements will be absolutely cancelled," said an MOF official, adding that China pays excessive subsidies in its fiscal support for SOEs.

These include export subsidies, specific subsidies granted to SOEs, and some subsidies granted to loss-making enterprises.

Some subsidy items face adjustments to comply with WTO rules.

The ongoing taxation system reform in rural areas, which is expected to gradually halt subsidies to State-owned grain distribution companies and increase allowances to farmers, is part of the adjustments.

The move, following the common practice in developed countries, modifies subsidies that are not in consonance with WTO rules.

The ministry is also contemplating certain changes to "unemployment subsidies," which are given to some SOEs in hope of maintaining social stability by ensuring that laid-off workers get paid.

The subsidy, although reasonable, goes against WTO practices.

"The clear-up is not simply or blindly to stop subsidies breaking WTO rules but to improve the system to better serve the arduous reform drive of SOEs," said an expert who took part in the research on subsidies conducted by MOF.

WTO rules are a double-edged sword, said the expert: "We should make full use of them to protect SOEs'

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