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China is trying to change its economic model from investment and exports driven to domestic consumption driven. In the process, the country’s leaders now appear more willing to open up their financial system.

Look at some the recent developments:

·         There were two corporate debt defaults recently and the government did not step in to bail out

·         PBoC’s chief said recently that the country will fully liberalize interest rates in one or two years

·         Although there is no timeline for making the Yuan fully convertible, they widened the trading band to 2% above and below the fixing rate, starting Mar 17

·         The central bank appears more willing to let money market rates spike at times as it tries to rein in excessive lending

·         Shanghai stock exchange raised the shareholding cap for foreigners to 30% in a single company from 20% 

Although most parts of the financial system still remain closed, these measures suggest that China is slowly moving towards a more market-driven economy.

What does it mean for China and the global markets?

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