China is putting government supervisory boards in place at selected state companies as a trial for wider use of a system intended to improve operations.

"The 20 firms are the trial group of 1,000 key state enterprises scheduled to get teams of supervisors. All teams will be in operation by Oct. 1," said Chen Qingtai, deputy head of the State Economic and Trade Commission.The boards, generally with a dozen or so members, will monitor finances, treatment of state assets and general operations, officials say. At least a third of China's more than two million state firms are chronically in the red.

Company executives will be in the minority on the oversight panels with 26 percent representation. Government officials will have 60 percent and academics and other outsiders the rest.

China is grappling with a solution to the heavy losses and subsidies of state companies, many of them in main industries. Their huge debt load also affects banks, which the government is trying to convert to commercial and profitable operations.

Widespread bankruptcy, frequently threatened, hasn't happened because of the social disruption it would create. Privatization is being tried, but faces resistance by conservative officials who regard the state sector as the backbone of the economy.

Wang Zhongyu, minister of the State Economic and Trade Commission, said earlier this month 47 firms have declared bankruptcy since last year with 114 expected to do so.

He said 31 state firms in 18 cities including Shanghai are in the process of declaring bankruptcy and that 83 would soon reach that stage.

"We are determined to let loss-making state enterprises go bankrupt," Mr. Wang said. "But we have been prudent for the sake of social stability."

The scale of debt default among companies continues to rise, according to the State Statistical Bureau. A survey of manufacturers in May found arrears

amounting to 719 billion yuan ($86.6 billion), an increase of 87.7 billion since the beginning of the year.

State-owned enterprises were owed 421.6 billion yuan, around 38 billion more than at the beginning of the year.

Manufacturing industry overall registered growth of 30 percent in output value and 33 percent in revenues in the first four months of the year, data

from the statistical bureau show.

But 24.5 percent of industrial firms were in the red, with total losses up 10 percent on a year earlier.

Production costs jumped 35 percent, financial expenses nearly 42 percent and payrolls 33 percent. Gross profit managed a gain of 2.4 percent.