* Welcomes foreign investment firms, funds, official says
* Rising corporate debt could destabilise economy - analysts
* Debt-to-equity swaps seen in cyclical industries in early stages (Adds details)
BEIJING, Oct 14 (Reuters) - China will welcome the participation of foreign investment firms and funds in its debt reduction efforts, an official of the country's powerful state planner said on Friday.
China unveiled guidelines this week to cut rising levels of corporate debt that some analysts fear could destabilise the world's second-largest economy. Converting debt into equity stakes will be among the measures to cut leverage.
"We welcome international investment companies and investment funds to participate in the (debt) disposal process," Sun Xuegong, deputy director general of the department of fiscal and financial affairs at the National Development and Reform Commission, said at a briefing in Beijing.
In the initial stages, Sun said, debt-to-equity swaps could mostly happen in China's "cyclical" industries, where companies face greater operating difficulties.
Such sectors include steel and coal, for example, but Sun did not elaborate.
The government will step up scrutiny to keep "zombie firms" out of the swaps programme, he added.
Zombie firms are economically unviable enterprises that survive only with the support of local governments and banks. China has vowed to use tougher environmental, efficiency, quality and safety standards to drive them out of the market.
On Thursday, an agency spokesman said the latest round of debt-to-equity swaps could cut total company liabilities by around 10 to 20 percentage points, but the final amount would be decided by the market, and not the government.
The guidelines require Chinese banks to transfer debt to asset management companies, which in turn "implement" debt-to-equity swaps, because commercial bank law bars banks from investing in non-financial firms. (Reporting by Kevin Yao and Beijing Monitoring Desk; Editing by Shri Navaratnam and Clarence Fernandez)