SCMP reported that the Xinming Steel Pipe plant in Tangshan, a polluted industrial city that produces more steel a year than the entire United States, shut earlier this month, leaving more than 400 workers and a host of creditors unpaid.

The turmoil at the firm shows how huge overcapacity is pushing scores of similar steel enterprises to the brink of bankruptcy. Unlike in the past, however, provincial governments are now unwilling or unable to bail them out.

In a bid to rebalance the world's second-biggest economy, Beijing is dismantling a local government support structure that gave steel firms a lifeline of cheap credit, lucrative construction contracts and preferential tax rates.

This support has saddled the mainland's steel industry with huge debts and at least 200 million tonnes of excess production capacity far more than either US output of 87 million tonnes or the European Union's 166 million tonnes. The mainland is estimated to have a steel production capacity of more than 1 billion tonnes.

Tangshan, 170 kilometers east of Beijing, produces 100 million tonnes of mostly low end steel used in construction every year and has been at the centre of a campaign aimed at closing obsolete and polluting steel works.

After a devastating 1976 earthquake killed at least 250,000 people and levelled much of the city, Tangshan was given free rein to use steel to rebuild its shattered economy. But it is now feeling the pressure from Beijing's efforts to control chaotic, credit fuelled growth.

A manager at one of Xinming's creditors said that while the government was holding discussions with creditors to see whether the firm's debts could be rescheduled, bankruptcy proceedings could be launched if there was no agreement. This is just one example of many - most firms have been trying to cling on until rivals disappeared and the market improved, but they can't all do so.