Business firms associated with the party and government organisations would be separated by December 20 and put under the direct supervision of two bodies under the communist party's central committee, according to minister of the state economic and trade commission (SETC), Sheng Huaren.

Financial firms would be directly supervised by the central bank, the People's Bank of China and the central committee's financial working committee, headed by vice-premier and politburo member Wen Jiabao, Sheng told newsmen here at a press conference yesterday.

Non-financial firms would fall under the umbrella of the central committee's large and medium-sized enterprises working committee led by another vice-premier, Wu Bangguo.

"All commercial businesses will be cleared by the end of this year. Some will be reorganisedand some others will be closed," Sheng said.

Sheng said separation was necessary because the business connections had "harmed party's image" and "bred corruption".

However, the switch will by no means weaken the party's clout over businesses. In fact, it will strengthen control over firms by centralising them under the two central committees, he added.

Meanwhile, senior SETC officials said widespread lay-offs are to continue with the state sector reform programme.

In the first 10 months of 1998, profits of large and medium-size state companies plummeted 59.5 per cent, compared to the same period in 1997, to 23.5 billion yuan (2.83 billion US dollars) Sheng said.

He blamed the Asian financial crisis, the summer floods, poor products and management, an excess supply of most goods and heavy debts.

Sheng also said staff levels were up to 10 times higher than those of foreign firms making the same products.

However, Zheng Silin, vice-chairman of the commission, insisted the number of laid-off workerswould gradually fall over the next two years as they found new jobs.

From January to October, China's textile industry destroyed 4.8 million spindles and laid-off 450,000 workers, cutting losses by 1.38 billion yuan, he said.

Next year's target was to destroy another 5.2 million spindles, lay off 750,000 workers and cut losses by 4.62 billion yuan, as well as close 25,800 coal mines and cut output by 250 million tonnes, or 18 per cent of 1997 production.

Such large cuts have pushed up the number of workers laid off from state firms to 7.14 million, to which can be added the six million registered as unemployed. Together, these account for about seven per cent of the urban workforce.