Previously, foreign capital wasn't allowed to have majority ownership in steel mills in China.
Analysts said the move shows China is taking an open attitude toward the participation of foreign investment in heavy industry.
"The entry of wholly foreign-owned steel enterprises may lead to tougher competition in the steel industry, which could spur the transformation and upgrading of domestic steel companies," Wang said.
"Also, it is likely that foreign makers of advanced and specialized steel products will get involved," Wang said. Such products aren't widely made in China.
Wang said that if the proposal for Dongbei Steel goes ahead, the swap plan can be considered to have officially begun.
Cabinet unveils steps to bolster investment
China's cabinet, the State Council, has unveiled detailed steps, including widening financing channels for companies and establishing new equity funds, to support investment and economic growth.
The government will widen corporate financing channels and support asset securitization, allowing investment projects to raise funds in the corporate bond markets, according to the guidelines.
China will establish market-based industrial equity investment funds and encourage participation of banks, insurance firms and the national social security fund, according to the guidelines posted on the central government's website.
The steps will help "deepen investment and financial system reforms and let investment play a key role in stabilizing economic growth, adjusting the economic structure and improving living standards," the cabinet said.
The cabinet pledged to simplify approval procedures for companies making investment decisions and tackle the problem of elevated -borrowing costs for investment projects.
China will launch pilot programs to allow financial institutions to hold stakes in companies and speed up the market-based transformation of local government financing vehicles, the cabinet said.
The government will push reforms to lure more private investment into the railway, petroleum, natural gas, power and telecommunications sectors, partly via the Public-Private Partnership model, according to the guidelines.
The economy expanded slightly faster than expected in the second quarter but private investment growth fell to a record low.
