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China Is Taking On the ‘Original Sin’ of Its Mountain of Debt

  • Reducing leverage risks touted as top priority for regulators
  • Wealth management products, entrusted loan levels remain high
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The debt mountain in China has been characterized in state media as 'The Original Sin' of the financial system. Bloomberg's Emma O'Brien reports on 'Bloomberg Daybreak: Asia.' (Source: Bloomberg)

China’s much-vaunted campaign to tackle its leverage problem has captured headlines this year. But to understand why they’re taking on the challenge -- and the threat it could pose to the world’s second-largest economy -- you need to dig into the mountain.

Characterized in state media as the “original sin” of China’s financial system, leverage has swelled over the past decade -- partly because policy makers were trying to cushion a slowdown in growth from the old normal of 10 percent plus. What’s fueled the leverage has been a rapid expansion in household and corporate wealth looking for higher returns in a system where bank interest rates have been held down.