'China is trying to modernise its economy'

China has decided to weaken its currency, knocking 2% off the value of the yuan in dollar terms.

This change has been felt widely: oil and copper prices have slumped to six year lows and the shares of Burberry - which has China as a key market - have dropped by more than four percent.

It is a technical change, said Jonathan Fenby, managing director of China research at Trusted Sources - which provides investment research on emerging markets.

"The official rate was in the past fixed by the central bank," he said.

"It will now be fixed in relation to how trading on the market finished the previous day."

While it is still controlled, Mr Fenby described the change as a move towards market liberalisation.

'China is trying to modernise its economy', he said.

Mr Fenby warned that if the yuan fell too much there would be a 'currency war' in east Asia.

The fear is that they will be able to export less because their products are less expensive in local terms, said Jane Foley, senior currency strategist at Rabobank.