China's corporate debt has hit record levels and is likely to accelerate a wave of domestic restructuring and trigger more defaults, as credit repayment problems rise.

Chinese non-financial companies held total outstanding bank borrowing and bond debt of about US$12 trillion at the end of last year -— equal to over 120 percent of GDP -— according to Standard & Poor's estimates.

Growth in Chinese company debt has been unprecedented. A Thomson Reuters analysis of 945 listed medium and large non-financial firms showed total debt soared by more than 260 percent, from 1.82 trillion yuan (US$297 billion) to 4.74 trillion yuan, between December 2008 and September 2013.

While a credit crisis isn't expected anytime soon, analysts say companies in China's most leveraged sectors, such as machinery, shipping and construction, are selling assets and undertaking mergers to avoid defaulting on their loans.

More defaults are expected, said Christopher Lee, managing director for China corporates at Standard and Poor's Rating Services. "Borrowing costs already are going up due to tightened liquidity," he said.

China rarely allows corporate failures, particularly of state-backed companies, partly out of fear that widespread layoffs could lead to social unrest.

China Erzhong Group (Deyang) Heavy Industries Co, a loss-making manufacturer of equipment for the steel and power industries, faces higher borrowing costs after a wholesale restructuring, said Huang Guozhan of the company's board secretary's office.

The Sichuan-based firm, which expects to report a 2013 loss of 3.15 billion yuan and may see its shares suspended, held debt of 11.4 billion yuan in September, according to stock market filings.

In July, the State-owned Assets Supervision and Administration Commission ordered China Erzhong, together with its parent company, to merge with state-owned China National Machinery Industry Corp.

A management reshuffle followed, while a proposed 1.9 billion yuan asset sale was canceled. Accumulated losses may drive up the cost of the company's loans, Huang said, should banks cut the firm's ratings.

China's massive holding companies, power producers and construction materials firms are among the most highly levered in the world's second-largest economy, with each sector reporting twice as much debt as equity at end-September.

Leverage in freight and logistics services reached 85 percent in September, forcing a wave of asset sales. Changjiang Shipping Group Phoenix Co, one of five listed firms under Sinotrans & CSC Holdings Ltd, another central government company, has been selling ships and borrowing money from its parent after its 4.9 billion yuan investment in new vessels turned sour.