BEIJING (Reuters) - China has launched a 350 billion yuan ($52.5 billion) state enterprise restructuring fund to advance its ‘supply-side’ reforms as the world’s second-largest economy undergoes its most significant transformation in two decades.

China's national flag flutters at a business district in Beijing, October 29, 2015. REUTERS/Kim Kyung-Hoon

China has made reform of its lumbering and uncompetitive state-owned enterprises (SOEs) a priority as weak global demand drags on economic growth and excess capacity and idle workers bleed what precious resources companies have at their disposal.

Earlier this year, China said it was planning to allocate 100 billion yuan to help local authorities and SOEs finance layoffs in its struggling coal and steel industries. Up to 1.8 million people in the sectors could lose their jobs, official estimates showed.

The capital raised by the China State-owned Enterprises Restructuring Fund will focus on boosting the competitiveness of some SOEs and their international operations, including overseas acquisitions, the State-owned Assets Supervision and Administration Commission (SASAC), which will manage the fund, said in a document.

“Among SOEs controlled by the central government, some have excess capacity while others are suffering from a severe lack of capacity,” state radio cited Xiao Yaqing, head of SASAC, as saying on Monday.

“Setting up this new fund will help concentrate state capital on strategic and forward-looking industries.”

The fund will have an initial registered capital of 131 billion yuan provided by 10 SOEs.

The 10 firms investing in the fund include China Mobile Ltd 0941.HK, China Railway Rolling Stock Corp 601766.SS and China Petroleum & Chemical Corp 600028.SS.

Key investment areas of the fund include assets pertaining to national security and are of economic importance such as strategic reserves of natural resources, oil-and-gas pipelines, power grids and telecommunication infrastructure, according to the SASAC document.

The fund will also focus on restructuring SOEs.

For some sectors like coal and steel, restructuring has meant closures of mines and plants, and layoffs. For others, it has meant high-profile marriages to create national champions with the heft to compete globally.

Last year, Beijing ordered the merger of top train manufacturers China CNR Corp and China CSR Corp.

“This fund aims to facilitate the destocking and deleveraging process,” said Zhou Hao, senior emerging markets economist at Commerzbank.

China’s state sector employed around 37 million people in 2013, and accounts for about 40 percent of the country’s industrial output.

The retrenchments are China’s most significant layoffs since the restructuring of SOEs from 1998 to 2003. That round of reforms led to around 28 million redundancies and cost the government about 73.1 billion yuan in resettlement funds.

China is not the first country to create a fund to support state firms going through hard times. The South Korean government has approved a $9.5 billion fund to help recapitalize state-run banks exposed to the country’s troubled shipping sector.

China will reduce the number of SOEs this year to no more than 100 from 106, state media reported in July, citing SASAC Deputy Secretary-General Peng Huagang, who added that 10 central SOEs were in talks to create five groups.

China’s central SOEs will complete their restructuring by the end of next year by introducing private capital and strategic investment, the Economic Information Daily reported earlier this month, citing unnamed insiders.