They cite a Beijing decree halting "random" sales of small state-owned firms, an order to restart state bank lending to "promising" loss-making state firms and an official urban jobless rate unchanged at 3.1 per cent from 1997 to 1998.

"The economic situation is not conducive to the reform of state-owned enterprises and that's why the reform has substantially slowed down and practically stopped in some regions," said Jean-Pierre Cabestan, director of the French Centre for Research on Contemporary China.

Chinese officials, however, are upbeat about the reform of State-Owned Enterprise (SOE). Sheng Huaren, in charge of the programme as head of the State Economic and Trade Commission, declared last week: "The pace of SOE reform has not slowed and in some areas it has evenquickened."

China failed to tackle state sector reform earlier in the decade when the economy was booming and must now retrench because falling exports and slackening domestic demand make the programme more painful and politically risky, most sceptics agree.

But Sheng told a news conference during the annual session of parliament the widespread view that SOE reform had stalled was wrong, even as he acknowledged the adverse economic climate and isolated cases of unrest among laid-off workers.

"We took more strident steps in 1998 than we had taken in any previous year," he said, citing the closure of small coal mines and the elimination of more than five million textile spindles.

By the end of last year, 6.1 million workers had been laid off from state-owned companies, but during the year 6.09 million laid-off workers had found jobs again, Sheng said.

Sheng said of 7,680 large and medium-sized state enterprises, only 2,346 were losing money. The number of lossmakers would be reduced by one third thisyear and another one third next year, leaving no more than 15 per cent of the total stuck in the red.

Asked to judge the results of SOE reform in the hinterland, a diplomat based in western China said: "It's not easy to quote specifics, but I would agree with the pessimists."

Members of the National People's Congress, or parliament, also offer a less-than-rosy view of the unfinished tasks ahead in SOE reform.

Peking University economist Li Yining, vice-chairman of the NPC's financial and economic committee, saw a "great deal of difficulty" ahead for SOE reform.

"A social insurance system has not been completely established and the shift to remove government from operating enterprises must be carried out," Li told Reuters.

Zhu kicked off parliament last week with a gloomy economic assessment and a renewed call for SOE reform. "When Zhu underscored state sector reform and paused for the expected applause, there were a few telling moments of silence which suggested delegates are not keen to see moreSOEs ripped apart," said a diplomat who attended Zhu's speech.

Zhu later worked the sidelines to drive home the need to stick with his programme, telling lawmakers from the northeastern rustbelt province of Jilin his "correct and effective" SOE reform plan "must be implemented fully and to the letter".

Andy Xie, Greater China economist at Morgan Stanley Asia in Hong Kong, said the dire need to restructure state banks crippled by spiralling SOE debt made reform "inevitable" with no room for half-measures to shore up the firms until better economic times.

"The state sector is not liquid anymore -- so they have to make a decision," Xie said, citing calculations the SOEs' return on capital had fallen by half in the last five years.

"You can give the state enterprises a few more years of breathing space, but in the end it doesn't make sense to take half-way measures to delay the day of reckoning."