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Editorial: China Needs Two-Pronged Regulatory Approach to Fix Its Financial System

Balancing between economic growth and cutting leverage has been an eternal conundrum facing policymakers. Nowhere is this need to strike a precarious balance felt more than in China’s money market. It has been rattled by tighter liquidity in the interbank market and concerns over the first macro prudential assessment (MPA) after the new rules were announced last year to assess banks’ performance that take into account off-balance sheet wealth management products when gauging credit risks. The MPA due later in the second quarter is expected to increase capital reserve requirements for financial institutions and add to their liquidity stress.

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