China could raise billions of yuan by liquidating some State assets to finance its huge shortfall in pension funding.

Failure to do so could otherwise threaten the country's pension system, a recent report of a government agency said.

A variety of measures could be employed, including redeeming State-held shares in listed companies and charging for the previously free use of land, to raise funds to support a sounder pension system, according to the report by the State Council Office for Restructuring Economic System.

The Chinese Government needs at least 1.8 trillion yuan (US$217 billion), which was the most optimistic scenario, to repay debts owed under the old pension system, the report said.

China implemented a new pension system three years ago that established individual pension accounts for active workers in State enterprises, to be contributed to monthly by both workers and employers.

But that left a gaping need for pension funds for workers retired or hired before 1997 who expect equal treatment, the office sources said.

Transitional measures, which required enterprises to absorb the implicit pension debt owed by the government, have put the new system "in a serious crisis," according to Song Xiaowu, director of the macroeconomic system department under the office.

A huge pension deficit has already resulted in siphoning as much as 100 billion yuan (US$12 billion) from individual pension accounts to balance the pension system's budget in 1999, statistics from the Ministry of Labour and Social Security indicated.

Last year, the macroeconomic department of the State Council Office for Restructuring the Economic System and the United States-based insurer Aetna International Inc carried out a research project to seek solutions to the pension debt problem.

Liquidating some State assets was suggested by their joint report as a justifiable option to fill the gap in pension funding, because the central government is encouraging the withdrawal of State assets from non-strategic sectors of the economy in accord with the State's approach to the rules of a market economy.

Pensioners, who contributed to the growth of public assets, but who lived on low wages during the planned economy era, should be allowed to benefit from proceeds of State asset liquidations, Song said.

The sale of shares held by the State in listed companies on the Shanghai and Shenzhen's stock markets alone could raise as much as 220 billion yuan (US$26.5 billion), the report said.

China has announced a two-step programme to reduce the State's stake in listed companies. The portion of State or institutional shares would be cut to 51 per cent from the current 67.8 per cent, and, if the method proves reliable, could be reduced to 30 per cent. The plan is now in its first stage of implementation.

"Even if only half of the funds go to the pension system, it would be a huge figure," Gao Shusheng, one of the authors of the report, said.

By the end of 1999, 1,007 companies had listed a total of 284.6 billion shares on the exchanges in Shanghai and Shenzhen. The government or State-owned corporations held 192.7 billion shares, or 67.8 per cent, of the total volume.

Gao said it was in line with Communist Party of China's decisions made last year to liquidate part of the State's assets to boost pension funds.

Local governments have also been experimenting with ways to sell or auction bankrupt State-owned enterprises, but "the scope is limited and few funds have been raised" as most of the enterprises involved were in bad financial shape, he said.

Elsewhere, Gao said as much as 36.5 billion yuan (US$4.4 billion) could be raised if land that had been assigned free to enterprises and institutions is assessed a charge of 10 per cent of the value when sold or transferred on the market.

Many enterprises have been trading State land for profits, giving rise to corruption.