China will focus on mergers and restructuring, not bankruptcies, Xiao Yaqing, the head of the State-owned Assets Supervision and Administration Commission (SASAC), told a news conference.

As it tries to rejuvenate its economy, China aims to reduce the number of central government-managed enterprises and launch pilot programs that will allow more private investment in state-dominated sectors. It is also trying to slash overcapacity in the labor-intensive coal and steel sectors.

Reform plans have prompted fears that the country would face its fiercest unemployment pressures since the late 1990s, when about 28 million people were made redundant.

"The situation in the 1990s was completely different," Xiao told reporters. "The foundations we have now are much stronger than before."

"Protecting the interests of workers is an important aspect of the next stage of reforms, and there will be more mergers and restructurings, and as few bankruptcies as possible."

Sources have told Reuters that China is expecting to lay off 5 million to 6 million state workers over the next two to three years as part of efforts to curb industrial overcapacity and pollution.

According to official estimates, layoffs from the coal and steel sectors alone are expected to reach 1.8 million as the country works to tackle price-sapping overcapacity and shut down so-called zombie enterprises - loss-making firms that cannot afford to continue operating but are propped up by local authorities.

Xiao said 12 central government-run firms had been merged, bringing the total number of enterprises controlled by SASAC to 106.

Profits at the firms fell 6.7 percent last year to 2.3 trillion yuan. Xiao said the main reason for the decline was the collapse in the prices of oil and steel.

China has about 150,000 state-owned enterprises that manage more than 100 trillion yuan ($15.40 trillion) in assets and employ more than 30 million people, according to the official Xinhua news agency.