China will reduce its silk industry's production capacity by one third this year in a move to improve the sector's economic benefits.

The country will also let 24 state-owned silk enterprises go bankrupt this year and banks will therefore be saddled with writing off 1.36 billion yuan in bad debts as a result.

Qualified factories will be urged to upgrade their reeling machines and undertake innovations in techniques, designs and colors, Fan Xun, secretary-general of the China National Silk Association, was quoted as saying.

According to Fan, 29 programs will be helped with their technical innovations this year with 1.54 billion yuan in subsidized loans.

Moreover, state-owned silk-reeling factories will be helped to ease their social burdens and to lower their debt-to-equity ratios, according to the State Textile Industry Administration.

Seventeen silk enterprises will be allowed to launch debt-to-equity swaps in 2000, and this involves 2.02 billion yuan (250 million US dollars) in capital, as indicated the State Textile Industry Administration sources. The silk sector made 320 million yuan profits during the first 11 moths of 1999 after years' government efforts by to reform the industry.

But the silk industry has yet to resume its past glory. And about 65 percent of the state silk enterprises are losing money. The country's silk exports totaled 2.8 billion U.S. dollars last year, as against 3.5 billion U.S. dollars in 1993.

Silk export firms lost 350 million yuan, silk processing factories reported 2.6 billion yuan in losses and farmers chopped down more than 40 percent of the country's mulberry trees.