China Faces Growing Calls to Let the Renminbi Strengthen as Trade Surpluses and Global Tensions Mount

Despite modest appreciation over the past year, the renminbi’s real effective exchange rate, which adjusts for inflation differentials, remains significantly weaker than its pre-pandemic levels, meaning Chinese goods have become relatively cheaper in global markets. Analysts at major financial institutions estimate the currency may be undervalued by as much as 15–25 per cent in real terms, contributing to a surge in China’s trade surplus and intensifying export competitiveness, especially in manufactured goods and intermediate inputs. This persistent weakness has drawn fire from trading partners, especially in Europe, where exporters have struggled to compete amid strong currency differences.

Critics argue that an undervalued currency artificially boosts exports by lowering prices for foreign buyers at the expense of domestic purchasing power and global economic balance. International Monetary Fund officials and Western leaders have highlighted that allowing the renminbi to reflect market fundamentals more accurately could ease trade tensions and reduce the urgency for protective measures abroad. In particular, policymakers contend that a stronger renminbi could help mitigate China’s swelling trade surplus, which reached record levels recently as exports remained resilient despite slow global growth and tariff pressures, while supporting more sustainable consumption and investment patterns at home.

Yet several economic factors complicate the push for rapid currency appreciation. China’s domestic inflation has been low, with producer prices in sustained decline, and policy makers have prioritised supporting growth amid a sluggish property sector and weak household demand. A stronger renminbi could dampen export momentum and risk deflationary pressures by making Chinese goods more expensive abroad and reducing foreign earnings in local currency terms. Some financial strategists argue that modest, gradual strengthening is feasible and could attract foreign capital into Chinese markets, while abrupt appreciation would likely unsettle exporters and complicate broader policy goals.

China faces a delicate balancing act: managing external criticism and internal economic rebalancing while safeguarding export competitiveness and growth. Whether Beijing opts for a significantly stronger renminbi or opts to maintain tighter control over the exchange rate will have implications not only for China’s macroeconomic stability but also for global trade dynamics as countries grapple with widening imbalances and shifting supply chains in a period of economic uncertainty.