In the West, the undervalued yuan is seen as a key factor in China's export surplus. Beijing rejects this - but influential voices are certainly discussing a stronger Yuan.
Shanghai. There are sentences that immediately bring back historical memories in China. When Chancellor Friedrich Merz (CDU) complained about the undervaluation of the yuan after the EU summit in June and indirectly brought a kind of currency dialogue into play, the reaction in China was sharp. There is no need for such a dialogue, according to the message of the nationalist “Global Times”.
Europe's problem is not the Chinese currency, but home-grown issues such as energy costs, too little innovation and a weak industrial policy. China's export strength, on the other hand, is based on supply chains, innovative technologies and economies of scale. A few days ago, the central bank announced that the authorities' goal was to keep the currency "substantially stable" at an adaptable level. Beijing does not see much scope for appreciation.
But Beijing's rejection of the West does not necessarily mean that China wants to prevent any appreciation. There is certainly discussion in the People's Republic about a stronger yuan.
Specifically, Merz brought into play a dialogue modeled on the Plaza Agreement of 1985. This was an agreement between the leading industrial nations, including Germany. At New York's Plaza Hotel in 1985, they agreed on foreign exchange market interventions and political measures to weaken the US dollar against the Japanese yen and the German mark. The aim was to reduce the US trade deficit at the time.
Such negotiations could also help reduce the current imbalance, some believe. China's goods trade surplus reached a record high of almost 1.2 trillion US dollars in 2025 - despite a collapse in exports to the USA of around 20 percent. This decline was offset by increasing exports to, among others, Europe, the Southeast Asian Asean states and Africa.
The internal Chinese debate makes it clear: Beijing does not want to let the West dictate how to deal with the surplus. Especially not with a reference to an agreement that in China is also associated with the seemingly forced appreciation of the yen and the subsequent economic upheavals in Japan - and a political opponent at that. The Chinese reaction should therefore be understood primarily as a rejection of the demand to revalue the yuan in order to reduce the surpluses.
However, this is not the same as a fundamental rejection of moderate appreciation. While Chinese state media polemicizes against plaza comparisons, parts of the Chinese economic, political and financial elite are certainly discussing a stronger yuan. A contribution from the Chinese financial think tank China Finance 40 Forum from this year describes the currency as “significantly undervalued”. An appreciation is therefore a return to long-term equilibrium. The yuan recently appreciated slightly against the euro.
The underlying narrative is compatible with China's censored debate landscape. Neither the USA nor the EU could force the People's Republic to make a correction. Rather, Beijing would change course on its own initiative. The yuan is not freely convertible in capital transactions. The Chinese central bank controls the exchange rate within a framework; it is not determined freely according to supply and demand. An adjustment would therefore be possible.
The Chinese financial press is also cautiously arguing for a stronger currency. Hui Shan, Goldman Sachs' chief economist for China, expected a gradual and moderate appreciation of around three to five percent per year in an interview with the state-affiliated Chinese financial newspaper "Securities Times" in September. This can be tolerated without noticeably affecting the competitiveness of the industry.
Chen Dingding, professor of international relations at Jinan University in Guangzhou, southern China, argued similarly at a panel at the Konrad Adenauer Foundation in Shanghai in September. In his opinion, a stronger currency would give the Chinese population more purchasing power abroad. Whether this actually results in more consumption also depends on income, the propensity to consume and the restrictions on Chinese capital movements.
Chen also recommended that European and American negotiators align their arguments towards China more closely with the interests of the People's Republic. The question should therefore be: What is in China's own interest? A proposal that will certainly sound familiar to Europe's negotiating strategists.
EU Trade Commissioner Maros Sefcovic traveled to China for talks a few days ago. Before the talks and the subsequent EU summit in mid-October, Chancellor Merz and French President Emmanuel Macron had significantly increased the pressure on Beijing.
In a joint letter to EU Commission President Ursula von der Leyen, they called for new instruments with which EU states can defend themselves against market-distorting trade practices and dependencies. At the center of Western criticism of China's export business is always an undervalued yuan.
From the Chinese perspective, however, the incentives for a reversal of course on currency issues are limited. Shanghai economics professor Zhu Tian is not a fan of pushing the currency up politically. For a large economy like China, the exchange rate should not be a central economic policy instrument, he told Handelsblatt.
A stronger currency increases the purchasing power of Chinese consumers and companies abroad and increases the value of Chinese assets in dollars, Zhu said. However, the macroeconomic effects are limited.
The economist therefore calls for a “sufficiently expansionary fiscal policy to restore overall economic demand”. In his opinion, this would lead to a recovery in economic growth and corporate profits. Deflation would give way to moderate inflation, interest rates could rise and Chinese assets would become more attractive. All of these factors would tend to support a stronger yuan.
The Chinese economy is currently experiencing weak growth. In the first half of the year, growth weakened to 4.7 percent. The official target for the current year is 4.5 to five percent, after around five percent in the previous year. “In addition to having a supportive effect, an appreciation would also make exports more expensive,” said Johannes Petry, a finance scientist at the Goethe University in Frankfurt. The export business is currently one of the few growth drivers in the world's second largest economy.
For European political leaders and many economic institutions, the undervalued yuan is a key factor behind China's large export surpluses. Depending on the model and reference value, estimates in the Western debate range from a good ten to at least 30 percent. In a report published in February, the International Monetary Fund also pointed to a significant mispricing.
However, China opposes this view. There are voices like that of Chen Dingding, who admitted that the Chinese surpluses are not sustainable in the long term. However, the official narrative emphasizes that China has never consciously sought a surplus over Europe. Instead, the Chinese economy has become more competitive.
The weak domestic consumption is also interpreted as a problem in China. There is therefore not necessarily any resistance to a slight adjustment of the currency, but there is to a large jump in the currency. Beijing does not want to declare an appreciation as its goal, but also does not seem to want to prevent a moderate adjustment at all costs.
The possible calculus: If the yuan appreciates because of the high surplus, increased Chinese competitiveness or a weaker dollar, China can tolerate it - as long as the rise remains slow, the export economy remains stable and China maintains control of the pace and political narrative.
That's why pressure from Brussels is met with counter-pressure from Beijing, as is so often the case. The rejection is less about a stronger Chinese currency than the attempt to dictate its development from outside.
