China may adopt flexible exchange rate to attract investors

Chinese top leadership is holding a plenum session this week, and the focus will be the eye-catching 13th Five-Year Plan. What market focuses in the first glance is the growth target. 

"China should have at least 6.5% growth during 2016-2020 to meet the old goal of doubling per-capita GDP and overall GDP by 2020 from 2010 levels. That said, the most likely case is to set the growth target at 6.5% - 7.0%. To achieve this aggressive growth target, the base case is that China will still maintain an expansionary monetary policy and proactive fiscal policy", says Commerzbank. 

Different from solely relying on bank credits in the past, Chinese corporates will be encouraged to tap capital market to get access to funding. From this perspective, further development in financial markets can be expected. China is still ambitious to push RMB's international status and export its economic power. 

But this requires a sophisticated financial market to connect onshore China and the rest of the world. China is accelerating the interest rate liberalization reform, which will be a key element for further capital account openness. Nonetheless to attract global investors China will have to allow a more flexible RMB exchange rate regime, suggests Commerzbank.