BEIJING (Reuters) - China will close thousands of small steel smelters and mills as part of a campaign to reduce steel output by 10 percent and ease markets glutted with consumer and industrial goods, the China Daily Business Weekly said.

In sweeping cuts that will put thousands out of work and deal a heavy economic blow to numerous small one-industry towns, more than 2,500 smelters and mills with annual capacities below 100,000 tons will be shuttered, the newspaper said on Sunday.

Wang Xiaoqi, an official of the State Administration of Metallurgical Industry, said the closures were necessary to restructure the world's biggest steel industry.

As of 1997, China's ferrous metals production sector, exclusive of miners, had 3.2 million workers employed in some 6,100 enterprises, official figures show.

The closures, for which there was no firm timetable, would target plants with old technology that wasted funds, created shoddy products and caused serious pollution, Wang said.

He said the central government anticipated resistance to the closures by local governments dependent on the plants for tax revenues and jobs, but would enforce the policy with ``strict measures'' such as denying targeted mills raw materials, electric power, credit and markets for their steel.

The closed plants would be dismantled and their equipment scrapped to prevent them reopening elsewhere, the newspaper said. An ongoing campaign to slash textile output has been hampered by the transfer of defunct looms to new factories.

BATTLE AGAINST STEEL GLUT

State media said last month that China expected 1999 steel output to reach 122 million tons, up 6.47 percent from 1998.

Beijing has said it would cap steel output at below 110 million tons and steel products at below 100 million tons in 2000 to ease oversupply.

The announcement of the steel output cuts comes amid a concerted effort to cope with gluts in consumer and industrial goods that have driven down prices and profits and afflicted China's economy with more than two years of deflation.

Earlier reports have said China would impose harsh measures to cut its surpluses of coal, steel and sugar, and to reduce acreages under grain and cotton.

State media in the face of much skepticism by economists has carried reports since the new year predicting a resurgence in the fortunes of struggling state owned enterprises.

The China Daily said on Saturday that the crumbling state sector was expected to register its best results in five years in 2000, led by a return to profit in the railway industry.

The newspaper said laggard industries such as textiles, construction materials and non-ferrous metals began to make a profit at the end of 1999, while the defense and coal industries trimmed losses.

State-owned enterprises will earn 80 billion yuan ($9.66 billion) in net profits this year, the newspaper quoted Minister of the State Economic and Trade Commission Sheng Huaren as saying.

It gave no comparative figure for full year 1999 but said state-owned enterprises made 76.5 billion yuan in profits in the first eleven months of the year, double the figure for the same period in 1998.

China has said it is on track to make the entire state sector profitable by 2001 but economists say Chinese figures are unreliable and the sector is likely to see a net loss in 2000 due partly to overproduction and slack domestic consumption.
($1-8.279 Yuan)