Under the plan, most provinces would be allowed only one trust company, although more economically developed provinces may be granted two, the sources told Reuters. Only six to eight national-level trust firms would be permitted to operate in Beijing, they said.

The plan to radically restructure the chaotic trust and investment industry would be reviewed at an annual national financial conference between January 19 and 21.

A central bank spokesman confirmed the restructuring would be on the agenda, but he declined to give details.

Analysts said the plan was spurred by the collapse last October of Guangdong International Trust and Investment Corp (Gitic), one of the best-known Chinese names in world capital markets, with debts of 36.17 billion yuan ($4.37 billion).

China said on Sunday it would seek bankruptcy for Gitic, which would be China's biggest business failure since the communists came to power in 1949.

The collapse of Gitic has left foreign creditors holding millions of dollars of debt that may never be repaid.

By announcing that overseas banks would not have any priority when it came to dividing Gitic's assets, China has risked chasing away foreign lenders.

Nevertheless, China has won plaudits overseas for its resolute efforts to clean up its financial industry and avoid a Southeast Asian-style financial meltdown.

Chinese industry analysts said trust companies would have only a limited impact on foreign creditors since the main exposure of most of the firms was to domestic financial institutions.

National-level trust firms likely to remain would include China International Trust and Investment Corp, China Everbright International Trust and Investment Corp and China Gohden Valley International Trust and Investment Co, the sources said.

An official with another top-tier trust firm, China Sci-tech International Trust and Investment Co, said the company was negotiating with Beijing to stay in business.

The wholly owned trust firms of China's four big state-owned banks would be closed, sources at the banks said. This was in line with a decision by Beijing to bar trust companies from securities trading, now the main source of their revenue.

The four trusts firms are the China Huarong Trust and Investment Corp, China Dongfang Trust and Investment Corp, China Changcheng Trust and Investment Corp and China Xinda Trust and Investment Corp.

The four had high asset-to-debt ratios, but their exposure to foreign debt was limited, the sources said.

The assets and liabilities of Huarong, Dongfang and Changcheng were expected to be taken up by their parent banks -- the Industrial and Commercial Bank and Agricultural Bank of China respectively, they said.

Xinda's debts would be absorbed by an asset management company to be set up by the state to restructure the bad debts of its parent, the China Construction Bank, an official at the bank said.