China's leading finance and economics authorities issued the "2019 Key Points for Work to Reduce Corporate Leverage Ratios" on Monday. 

The directive from the National Development and Reform Commission (NDRC), the People's Bank of China (PBOC), the Ministry of Finance (MOF), and the China Banking and Insurance Regulatory Commission (CBIRC) outlined four key aspects of work to reduce corporate leverage ratios with a view to better preventing and resolving major financial risks.

Further advance market-based, law-based debt-for-equity swaps

The authorities will make efforts to stimulate finance and asset investment firms to play their roles in marketizing the debt-for-equity swaps of companies. 

Social capital, commercial banks and foreign investment are encouraged to participate in the debt-for-equity swaps of quality companies under an environment of continuously-improving company governance and social capital rights protection. 

Synthesize different measures to reduce leverage 

The authorities accelerate the disposal of "zombie enterprises" debt. 

The newly-published directive highlights the promotion of corporate strategic restructuring and structural adjustment and directs the vigorous development of equity financing.

Integration of resources is encouraged, through mergers and acquisitions, to clear excess capacity, increase industrial concentration and reduce homogenization and disorderly competition, and waste of resources. 

Establish sound risk and control mechanisms related to corporate debt risks

The authorities will work on improving companies' debt risk monitoring and early warning mechanisms and strengthening the in-debt financing constraints of financial institutions on enterprises. 

By enriching capital replenishment channels of state-owned enterprises, the authorities will encourage state-owned enterprises to attract capital by issuing common shares and preferred shares.

To prevent fake deleverage, the authorities will focus on further standardizing the capital management of state-owned enterprises and disposing corporate debt risks in a timely manner.

Optimize coordination and supervision of services regarding debt-for-equity swaps

The notice calls for the establishment of an evaluation and inspection mechanism for market-based debt-to-equity swap projects to strengthen the supervision of the whole process of market-oriented debt-to-equity swap. 

Regular on-site investigation, evaluation, supervision and inspection on the implementation of market-based debt-to-equity swap projects will help reduce corporate asset-liability ratio.