A deputy central bank governor has stated that China should allow more floundering firms to go bankrupt to help improve economic mechanisms, rather than allow them to get government-led bailouts.

The risk of corporate failures in China is rising as their economic growth slows and the government tries to cap the high debt levels in the economy to mitigate financial risks.

The deputy central bank governor, Liu Shiyu told a forum in Beijing: "In the course of our surveys, we found that many companies are in the zombie state but they have taken up a large amount of credit."

He urged companies in the coal, steel, machinery and shipbuilding sectors to find ways out of business difficulties, including using a bankruptcy law introduced in 2007.

Local government officials generally mediate between creditors behind closed doors and Beijing has used the law cautiously, fearing the failure of large firms and widespread layoffs could lead to social unrest.