What happens when you say you’ve taken away a safety net, but nobody believes you? That’s essentially what’s going on in one corner of China’s bond market, with the implication being that someone needs to get hurt before the message hits home. The issue relates to local government financing vehicles, or LGFVs, which boomed a decade ago when China’s Communist leadership let provincial and municipal authorities ramp up borrowing to fund all sorts of infrastructure and property development, Bloomberg News reported.

China’s financial system is getting significantly more vulnerable due to high leverage, according to central bank governor Zhou Xiaochuan, who also flagged the need for deeper reforms in the world’s second-biggest economy, Bloomberg News reported. Latent risks are accumulating, including some that are "hidden, complex, sudden, contagious and hazardous," even as the overall health of the financial system remains good, Zhou wrote in a lengthy article published on the People’s Bank of China’s website late Saturday.

After years of propping up lossmaking state companies with fiscal subsidies and cheap credit, one Chinese province has embraced privatisation to cast off its burden, setting a precedent for dealing with thousands of “zombie enterprises,” the Financial Times reported.  Dongbei Special Steel, based in the north-east rust-belt province of Liaoning, is a high-profile example of the excessive debt and poor profitability that has plagued thousands of lossmaking state groups.

It used to be that when America sneezed, the world caught a cold. This time around, it’s the risk of a sickly China that poses a bigger threat. The world’s second-largest economy is now trying to ward off the sniffles. While output is still growing at a pace that sees gross domestic product double every decade, the problem remains that much of that has been fueled by a massive buildup of credit, Bloomberg News reported.

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.