Several government departments jointly issued a notice on Wednesday detailing the reduction of domestic enterprise leverage, according to a statement published on the official website of the National Development and Reform Commission.
The statement, issued by departments including the NDRC, the People's Bank of China (PBOC) and the Ministry of Finance, noted that the government will set up a restriction mechanism for the assets of State-owned enterprises (SOE).
Under the mechanism, a precautious line and a key regulatory line will be set for the asset-liability ratios of different industries and companies, and those that go beyond such lines would have their debt risks evaluated, it said
The government would also draft a list of "key notice" and "key supervision" companies, as well as set a deadline and objective for the lowering of asset-liability ratios of those companies.
Also, firms with high debts would be restricted from engaging in overt debt financing, with measures set to include debt risk evaluation by banks for their company customers.
The statement also noted that the government will support financial institutions in carrying out market-oriented debt-to-equity transitions. Private equity funds are also encouraged to participate more in such an exchange.
To help "zombie companies" suffering from severe debt problems, the government is pondering over the launch of detailed regulations. For example, some tax policies could be launched to help those companies obtain debt clearance.
Data from the National Bureau of Statistics shows that by the end of 2017, major industrial enterprises had accumulated debt amounting to 62.3 trillion yuan ($9.13 trillion), up by 5.7 percent on a yearly basis. Meanwhile, their asset-liability ratio stood at 55.5 percent by that time, down 0.6 of a percentage point compared with the end of 2016.
