China defends renminbi policy as EU trade pressure builds

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China defends renminbi policy

Highlights

The People’s Bank of China released a forceful paper rejecting accusations of deliberate renminbi devaluation, citing over 50 percent nominal appreciation since 2005.
EU trade deficit with China stands at approximately €1bn daily, prompting French and German policymakers to increase pressure over exchange-rate policy and trade imbalances.
Beijing asserts sustained renminbi devaluation is neither viable nor intended amid $10tn average daily FX market turnover, emphasizing alignment with inflation and growth targets.

Central bank paper hardens currency stance

As reported by Financial Times, the People’s Bank of China released an unusually forceful paper last week rejecting claims that Beijing suppresses its currency to gain a trade advantage. The paper argues that China’s export performance reflects industrial competitiveness rather than deliberate devaluation, and says other economies are shifting responsibility for their own structural weaknesses on to exchange-rate policy.

The document also challenges the idea that there is a settled method for judging whether the renminbi is undervalued. It says the currency’s nominal effective exchange rate has appreciated by more than 50 per cent since the 2005 exchange-rate regime reform, while its real effective exchange rate is up by 35 per cent, citing Bank for International Settlements calculations.

Beijing further argues that no central bank can meaningfully control the underlying direction of a currency in a global foreign-exchange market with average daily trading volume near $10tn in 2025. In that framing, sustained devaluation is presented as neither a viable nor an intended tool for boosting trade competitiveness.

Debate over trade imbalances intensifies

European pressure remains strong, particularly as the EU runs a trade deficit with China of about €1bn a day. Policymakers in France and Germany have increasingly framed the issue around global imbalances, while some economists have linked China’s exchange-rate management to broader industrial and trade tensions.

Mansoor Mohi-uddin of Bank of Singapore says this is the first time the PBoC has made such an explicit statement and describes it as a vigorous defence of its exchange-rate management. He says the paper signals that Beijing does not accept the renminbi as the main driver of China’s trade surplus and intends to keep guiding the currency in line with official inflation and growth targets.

That view is disputed by Mark Sobel, a former U.S. Treasury official and now chief economist at OMFIF, who argues the paper is unconvincing. He says the renminbi remains heavily managed and that authorities have acted to slow appreciation, leaving unresolved questions about how closely China’s currency policy is tied to its growth model and large external surpluses.

In our earlier article on China’s September trade outlook, we reviewed expectations for another month of strong export growth and a still-elevated trade surplus, with external demand continuing to support the economy despite softer imports. We also noted that policymakers faced growing pressure from major trading partners over industrial overcapacity and widening imbalances, even as factory activity stayed in expansion territory and large-scale stimulus was seen as unlikely unless exports weaken.

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