China’s top market regulator is intensifying its crackdown on debt-laden “zombie companies” – rolling out a pilot programme in seven economic hubs to facilitate the forced exit of unprofitable firms often propped up by government subsidies or bank loans.

The move signals a broadening of Beijing’s campaign against local protectionism and the low-quality vicious competition that officials say results in neijuan, or “involution”.

With a change to China’s Company Law, the State Administration for...