THE government has allowed asset investment companies (AICs) to conduct asset management business to invest in debt-to-equity assets as regulators seek to expand equity financing and reduce leverage in the economy.

China’s major State-owned banks including Industrial and Commercial Bank of China and China Construction Bank have set up AICs to conduct debt-to-equity swaps in the past two years, as the country aims to cut leverage especially in State-owned entities and shift risks from banks.

Such AICs can now set up investment plans in market-oriented debt-to-equity assets including convertible bonds, debt-to-equity special bonds, ordinary shares, preferred shares and debt-to-preferred shares, the China Banking and Insurance Regulatory Commission (CBIRC) said in a notice Tuesday.

AICs can raise fund through private fundraising from qualified investors include families with at least 5 million yuan (US$705,000) in net asset or individuals with annual income no less than 600,000 yuan in the past three years, the CBIRC said. Insurance fund and pension fund can also invest in such debt-to-equity investment plans through AICs, it added.

The move came as China has been taking a series of measures to expand direct financing via capital markets. Policymakers are carefully balancing the need for liquidity to revive the economy hobbled by the coronavirus pandemic and risks of higher inflation and improving leverage.

Regulators also announced plans last week to create a public market for real estate investment trusts (REITs), aiming to channel personal savings and private capital into infrastructure projects without overstretching local governments.

Until now China has only allowed privately sold quasi-REITs in the real estate sector. Under the new initiative announced by the government, the country will see its first publicly sold REITs, which are investment vehicles that are backed by income-producing properties and trade like stocks.

Under the pilot programs, Chinese mutual fund houses will launch REITs products that invest in infrastructure projects including warehouses, toll ways, airports, public utilities and industrial parks.

Regulators have also fast-tracked approvals for bond and share sales, and kicked off a reform of initial public offerings on Shenzhen’s startup board ChiNext. (SD-Agencies)