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China needs to keep growth high enough to maintain social stability, but also must preserve external stability via the renminbi’s exchange rate. How China manages its currency during its economic policy shift could have important global consequences.

LONDON – After a long period of investment-driven growth, China is finally changing its policy playbook. Having recognized the costs of relying on excessive credit growth in the medium term, now it is emphasizing tax cuts, further market opening, and incentives to boost consumption over investment. This means accepting lower growth rates in the future.