Halpenny highlights a new PBoC document defending China’s FX policy and rejecting claims that CNY drives its trade surplus, instead pointing to manufacturing competitiveness. He notes BIS REER data showing a 20% fall from the 2022 peak and IMF estimates of 12–20% undervaluation, suggesting CNY is undervalued but only partly explains China’s export strength.

China defends FX policy and CNY level

“Trade Commissioner Maros Sefcovic is in talks with Chinese Commerce Minister Wang Wentao and coinciding with these talks is the release yesterday of a PBOC document defending the FX policy of China and arguing against the level of CNY as being the cause of China’s large trade surplus. Competitive gains within China’s manufacturing sector is the main driver of increase exports from China.”

“The release of this document by the PBoC suggests China isn’t budging. Is the CNY undervalued? The answer seems certainly yes although the scale of undervaluation is debated and while this undervaluation helps boost exports the FX factor is only a partial explanation.”

“The BIS REER level of RMB advanced notable from 2005 – by nearly 60% through to end-2015. However, from the 2022 high the index fell 20% to last year’s low before 6.5% to today’s level. The IMF estimates an undervaluation of between 12% to 20% which is around the consensus range.”

“This mounting pressure looks to be encouraging China too allow renewed gains. Recent PBoC fixing in USD/CNY indicate a desire to keep CNY on a strengthening path despite the broader gains for the dollar. EUR/CNY is 10% lower from the January high and we see near-term scope for further declines.”