China's undead army of zombie corporations will not qualify for debt-for-equity swaps, the government said, as Beijing tries to curb the risks of ballooning corporate debt.

New guidelines posted on the website of the State Council, China's cabinet, sought to offer some clarity to long-discussed but hazy plans to reduce debt by letting lenders swap bad loans for shares in some debtor companies.

The policy will offer debt-to-equity swaps with market-determined values to help "high-quality" firms with long-term growth prospects overcome "temporary setbacks", said the document, while barring "zombie companies" and those with poor credit ratings.

It called for mergers and acquisitions of debt-choked companies to improve competitiveness and reduce leverage.

China's Communist authorities have repeatedly pledged to give market forces a greater role in the world's second-largest economy, where growth is slowing and lumbering industrial firms, many of them state-owned, remain a drag.

The guidelines, posted Monday, came as analysts have sounded alarm bells over risks of a blowout in the economy, with total debt surging 465 percent over the past decade, and corporate debt leaping to 165 percent of GDP in 2015, according to Bloomberg News.

If corporate borrowing growth does not slow, the ratio of sour loans could triple to 17 percent by 2020, S&P Global Ratings said in a report Tuesday, adding: "We believe that the current growth rate of China's debt is not sustainable for long."

Economists have warned that the ballooning borrowing risks sparking a financial crisis as bad loans and bond defaults increase.

On Monday bankruptcy proceedings for the massive state-owned Dongbei Special Steel Group were approved, according to the official Xinhua news agency.

The 111-year-old company had defaulted on debt payments nine times in a row and now owed several billion yuan, it added.

Analysts with Nomura said they "expect more defaults and even bankruptcies further down the road", and warned that "a rising default rate is inevitable", driving the government to shoulder responsibility for bad company loans.

China's total debt hit 168.48 trillion yuan ($25 trillion) at the end of last year, equivalent to 249 percent of national GDP, the China Academy of Social Sciences, a top government think tank, has estimated.

Last month the Bank for International Settlements (BIS) -- dubbed the central bank of central banks -- said one gauge of Chinese debt had hit a record high in the first quarter of the year and warned it could face a financial crisis in the next three years.

But at a forum in Macau, China's Premier Li Keqiang said Tuesday the country's debt risks were "generally controllable", Bloomberg News reported.

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