China

China is returning to international bond markets for the first time in 13 years, with a $2 billion offering of U.S. dollar bonds that will allow the world’s second-largest economy to flex its financial muscle in the wake of its just completed Communist Party Congress. Bankers have begun marketing China’s five- and 10-year bonds to investors, primarily in Asia and Europe, and the securities are expected to price on Thursday, The Wall Street Journal reported.

China has taken “baby steps” toward cutting leverage as lending from banks slows, but progress has been uneven as borrowing by households and the government has risen, according to S&P Global Ratings. Authorities are adopting both tight and loose policies to try to reduce the country’s dependency on debt without causing a hard landing, analysts led by Christopher Lee wrote in a note dated Oct. 16. S&P last month cut China’s sovereign rating for the first time since 1999, saying it didn’t believe enough was being done to contain credit growth, Bloomberg News reported.

Can financial turmoil in China play havoc with the rest of the world? It has already happened. On the first trading day of 2016, China’s central bank sent shockwaves around the world by sharply lowering the value of the yuan. The decline in the currency itself, which came after the bursting of a stock market bubble, was not the biggest concern, The Wall Street Journal reported. Rather it was a sudden loss of confidence in China’s growth story that reverberated around the world.

China Development Bank plans to sign a document signaling support for the restructuring plan of debt-laden Brazilian phone carrier Oi SA, said two people close to the discussions. The bank may sign the agreement with Oi as soon as Tuesday, said the people, who asked not to be identified discussing private negotiations, Bloomberg News reported. The Chinese bank has been discussing in court how to restructure $1.2 billion in financing it provided to Oi just six months before the operator filed for the largest judicial recovery in Latin America’s history.

The debate in China over economic reform has just become more interesting. Central Bank Governor Zhou Xiaochuan on Monday called for freer trade and an end to capital controls as essential to restructure the economy, The Wall Street Journal reported. Coming on the eve of the Communist Party Congress, this could be an important moment. Mr. Zhou is right that a convertible currency—the yuan—is key to rebalancing China’s economy from its long-time dependence on high savings and investment.

The recent decision by the People’s Bank of China to cut the effective reserve requirement ratio for banks by half a percent to 1.50 percent under certain circumstances fits with the government’s attempt to reduce leverage in the financial system, a Bloomberg View reported. And in many ways, it will lead to more efficiency and economic growth. There’s been speculation that the move contradicts the central bank’s deleveraging efforts and that this is yet another example of China pumping liquidity into the system to support growth.

A wave of local-currency debt coming due next year alongside new stricter lending rules are bearing down on China’s developers and posing a risk to the country’s economy, The Wall Street Journal reported. The twin threats combined with a widely expected property market slowdown portend a shift in fortunes for many home developers after they rode a housing boom and strong profits in this year’s first half.

S&P Global Ratings cut China’s sovereign credit rating for the first time since 1999, citing the risks from soaring debt, and revised its outlook to stable from negative, Bloomberg News reported. The sovereign rating was cut by one step, to A+ from AA-, the company said in a statement late Thursday. The analysts also lowered their rating on three foreign banks that primarily operate in China, saying HSBC China, Hang Seng China and DBS Bank China Ltd. would be unlikely to avoid default should the nation default on its sovereign debt.

Deng Xiaoping, the former Communist leader credited with opening China’s economy to the world, described his approach to reforms as “crossing the river by feeling the stones.” That philosophy continues to influence policy makers in Beijing as they gradually open the nation’s bond market to foreign investors, Bloomberg News reported. The liberalization has potential to be the biggest of its kind and significantly impact the flow of international capital.

Volkswagen will recall 4.86m vehicles sold in China over airbag problems, marking the latest blow for the German carmaker that has suffered numerous quality and distribution issues in the Asian country this year. VW will recall vehicles equipped with airbags manufactured by the now-bankrupt Japanese automotive parts maker Takata, according to a notice posted by China’s consumer inspection bureau, the Financial Times reported. The recall will apply to both imported and Chinese-made vehicles sold as early as 2005 and take effect in March 2018.