A key measure to reduce the corporate debt burden is expected to see further progress in the coming months, with experts and business leaders calling for even more funding to facilitate deleveraging moves of debt-laden companies, in particular State-owned enterprises.

Financial regulators will undertake more supportive measures to overcome obstacles that have hampered debt-reduction programs, and heavily indebted State-owned enterprises will be the key target for deleveraging, according to a leading expert on financial regulatory matters, who declined to be named.

China’s debt-to-equity swap initiative has appeared to gather pace in recent months, supported by a slew of preferential measures to promote such programs. They aim to help lower debt burdens of enterprises by converting corporate debts into equities to be owned by entities established by the nation’s major banks and private capital.

Debt-to-equity swaps involve transactions in which a company’s obligations or debts are exchanged for equity, generally meaning shares in the case of a listed company.

Through the programs, debt-burdened companies will have their debt levels reduced while banks can improve their asset quality.

“The next round of deleveraging efforts is expected to put greater emphasis on curbing unregulated borrowing by struggling State-owned enterprises,” the expert said.

Unlike swap programs launched in the 1990s, this round of programs that began in 2016 is more market-oriented, thanks to the updated regulatory philosophy of the authorities, analysts said.

That means the government does not intervene in swap programs, and the conversion prices should be negotiated by banks, debtors and implementing agencies. And the authorities do not set strict timelines or specific targets for implementing the programs in order to allow room for market-based deals.

China’s corporate debt is equivalent to 160 percent of the country’s GDP, said Huang Qifan, deputy head of the National People’s Congress Financial and Economic Affairs Committee, in June. That means the scale of debt to be converted would be colossal even if a small proportion of the debt is included in the program.

Subsidiaries of creditor banks have made some profits in the first half of this year, indicating progress has been made. For instance, the China Construction Bank Financial Asset Investment Company, an agency conducting debt-to-equity swaps, saw 31 million yuan in profit in the first half of this year.

Starting from July 5, the central bank lowered the reserve requirement ratio for commercial lenders by 0.5 percentage point, freeing up about 500 billion yuan specifically earmarked for the debt-to-equity program.

The funding support by the central bank has helped solve financial shortages on a large scale, said a manager with a leading implementing agency under a commercial bank, who declined to be identified. “But more financing is needed to fill the gap, considering the fact that debt-laden companies are mainly large State-owned enterprises in troubled industries (that serve as the backbone of the economy).”

According to the National Development and Reform Commission, a total of 1.73 trillion yuan in swap deals were signed between banks and companies, but only around 20 percent had been funded.

“As many debt-to-equity swaps are high-yield, high-risk investments, independent market players might lack incentives,” said David Yin, an analyst with Moody’s Investors Service, adding that a clear exit scheme and more financial support are needed to facilitate the programs.