Reuters reported that China's slowing economy has hammered businesses supplying the raw materials for growth with coal and aluminium firms at risk of defaults and closures after clocking up at least USD 490 billion of debt in a rush to expand.

The debt mountain highlights the systemic threat posed by China's smokestack industries which Beijing wants to slim down after a stimulus fuelled investment boom launched in 2009.

Some recent data has raised hopes that China's economy is stabilizing but growth has slowed for nine straight quarters, piling pressure on these sprawling sectors just as China has pushed banks to tighten credit to companies.

Mr Andrew Driscoll head of resources at CLSA Asia Pacific said that "The inevitable is that we do see liquidity issues and failures for some of these companies and I think that will happen over the next 6 to 12 months."

Nearly 90 percent of mainland listed coal firms posted a profit drop in 2012, with total profits at a five year low. Once market darlings, the financial position of Chinese listed coal firms has deteriorated.

According to the China Coal Association, falling revenue has forced some miners to either delay payments or borrow money to pay salaries. With new mines coming onstream and imports still growing, the outlook for the coal sector where prices have fallen to 4 year lows, looks grim.

The median debt to equity ratio of listed coal firms jumped 15 percentage points from a year ago to 55% compared to 13% for Australian counterparts.

Steel minnow Pingte Iron and Steel Co Ltd declared bankruptcy in June and shipbuilder Rongsheng Heavy Industries Group had to ask for financial help from the government.

According to data from the National Bureau of Statistics obtained by research firm Askci Corporation, If the borrowing of state and unlisted firms is included, debt held by Chinese coal miners and washeries rose 23% to CNY 2.67 trillion at the end of 2012 from a year ago.

As China's economy has slowed, money owed by clients to major coal miners has also jumped by about a half to CNY 68.8 billion in the first 5 months of 2013 straining cashflows.

Mr Helen Lau senior analyst for China's commodity sector at UOB Kay Hian said that "Industries that face over capacity problems will go through a tough restructuring in the H2. The big firms will get bigger but the smaller ones will fail."