China denies claim it is keeping yuan low for competition

The People's Bank of China (PBOC) rejected claims that the yuan was kept undervalued as trade talks with the European Union began.

The bank argued that exchange rate adjustments could not resolve structural imbalances in the global economy and that China's export strength was due to increased industrial competitiveness, not exchange rate policy. PBOC said, "China has no need or intention to gain a competitive advantage by devaluing its currency."

While the yuan has gained 4.3% against the dollar this year, the euro has fallen more than 10% against the yuan since its peak in January. European officials argue that the weak yuan gives an advantage to Chinese exporters and contributes to the EU's growing trade deficit with China.

While German Chancellor Friedrich Merz argued that the yuan was 25%-30% undervalued, ECB President Christine Lagarde stated that China should be included in the negotiations regarding exchange rate valuations. Becky Liu from Standard Chartered said that PBOC's harsh statement shows that China has adopted a stricter attitude towards the EU and that its exchange rate policy is not open to negotiation with the EU.

Tommy Xie from Oversea-Chinese Banking Corp. evaluated the statement as "not a change in the exchange rate regime, but a position determination document before negotiations." While Francesco Pesole from ING does not expect a major change in China's exchange rate policy, he said that the statement indicates that PBOC may be more willing to resist further strengthening of the yuan.