The head of China's State assets administrator has urged its firms to carry out further strategic restructuring and improve corporate governance to sharpen their competitive edge.

"The industrial distribution of (central enterprises) remains irrational," said Li Rongrong, chairman of the State-owned Assets Supervision and Administration Commission (SASAC).

State-owned enterprises (SOEs) are too scattered across different industries and their scale is yet to reach its potential, Li told the heads of major State-owned firms under the direct control of the SASAC at a meeting in Beijing on Friday.

Many SOEs are yet to form a clear vision of what they should concentrate on as their core business, he added.

The number of SOEs under SASAC control was 196 in 2004. Now it is 159, and that figure is expected to be reduced to between 80 and 100 by 2010.

China will concentrate its State capital on key industries to sharpen its competitiveness in the face of intensified rivalry from foreign multinationals.

To that end it is accelerating the shareholding reform of SOEs to build up modern corporate governance. "Corporate reform still lags behind and some major enterprises have not established a sound board of directors," said Li. "The task of establishing modern corporate governance is very challenging."

Key firms under SASAC control achieved robust growth in the past three years, the first set term in which the performance of the managers of SASAC-controlled firms was assessed.

Revenue from the core business of these SOEs rose by 78.8 per cent between 2004 and 2006. Profits grew by 140 percent in the same period, with an annual average growth of 33.8 percent.

Li said he was satisfied with the figures, but that it was more important that the quality of the enterprises improved.