The nation’s top economic regulator allowed on Jan 26 banks’ wealth management products to be used for funding debt-to-equity swaps programs, as part of efforts to lower China’s high corporate leverage.

Private equity funds will now be allowed to raise money via qualified wealth management products to take part in debt-for-equity swap programs for the first time, according to a statement issued by the National Development and Reform Commission. The move comes as debt to equity swaps financing demand remains high in the country.

China launched a new round of debt-to-equity swap programs in 2016, aiming to reduce debt ratios by allowing creditors to take equity stakes in place of debt repayments, to avoid pushing debtors into default.

The new guideline specifies details that aim to better ensure the program will operate under market-based principles and to successfully offload distressed debt.

Before the new rules came out, some banks raised money from investors who bought wealth management products that were repackaged as swaps. A Beijing-based wealth management professional said the banks chose this method because they have to take into account and finance the costs of the swaps programs, often valued at billions of yuan.

But such activities became complex and concerned market players, as earlier guidelines did not specify whether these methods were legal, especially after China’s banking regulator tightened rules governing wealth management products, aiming to rein in risks in the shadow banking sector.

Zhang Minghe, who heads debt-to-equity swap activities at China Construction Bank Corp, said the new rules have some encouraging signs that further promote the program under market-based principles, as long as the wealth management products are of good quality and the banks disclose risks to investors appropriately.

He said the top regulatory bodies might issue more policies in the future to unify the standards for what kind of products may participate in the program, as well as rules covering the disclosure of investment risks. Greater specificity would help to ensure that investors will not be saddled with risks, letting only the companies benefit from the program, Zhang said.

Li Qian, a senior manager with Golden Credit Rating International, said other new rules in the guideline will help to facilitate more swaps to take place. Expanding the range of debt types for which both banks and non-bank institutions are allowed to swap for equity will benefit more enterprises, and thus facilitate the lowering of leverage levels, she said.