China: Trade Edge Not Built on Currency Devaluation

China’s central bank published a sweeping policy document on October 8 asserting that the country’s trade advantages stem from industrial competitiveness rather than a weak currency, and that Beijing has “no need or intent” to gain competitive advantage through devaluation — a direct rebuttal to mounting international pressure over the renminbi and China’s growing trade surplus.

The document, “The People’s Bank of China’s Policy Stance on the RMB Exchange Rate,” was released simultaneously in Chinese and English by the People’s Bank of China and carried by state media, marking one of the most detailed public defenses of China’s exchange-rate regime in years.

A Preemptive Defense

The statement was triggered by “increasing discussions recently” over the RMB exchange rate. It comes as China faces sustained criticism from the United States and the European Union over its roughly $1.19 trillion trade surplus, with the EU running a bilateral deficit of more than $1.1 billion per day.

“China has no need or intent to gain competitive advantages through currency devaluation, nor has it ever resorted to competitive devaluation,” the document states, according to the English version published by Yicai Global.

Beijing has long maintained that its export strength reflects genuine industrial upgrading. The document argues that empirical data disprove any mechanical link between a weaker currency and stronger exports. It notes that during periods of RMB appreciation — 2005 to 2008, 2010 to 2014, and 2020 to 2021 — China’s share of global exports rose by 2.4, 2.8, and 1.7 percentage points, respectively. Conversely, in 2016 and 2022, when the RMB depreciated by 7 percent and more than 8 percent, China’s export share fell by 0.7 percentage points each time.

Rejecting the IMF’s Yardstick

A central target of the document is the International Monetary Fund’s External Balance Assessment (EBA), which has repeatedly suggested the RMB is undervalued. Beijing called the use of EBA findings as “official evidence” of undervaluation a “misinterpretation and misuse.”

The document argues that the EBA is fundamentally a tool for analyzing external imbalances, not a dedicated model for estimating an equilibrium exchange rate, and that its three modules often produce “sharply divergent or even opposite results.” It also stresses that the EBA assesses the real effective exchange rate — not the nominal rate that critics focus on — and notes that the IMF’s actual policy recommendation to China is structural adjustment, not currency appreciation.

The pushback follows years of IMF pressure. In December 2025, the fund said China should allow the RMB to appreciate, with Managing Director Kristalina Georgieva suggesting the currency might need to rise 5 percent or more annually on an inflation-adjusted basis to remain stable in real terms, as reported by The New York Times.

A Currency That Has Strengthened

The PBOC’s document portrays the RMB not as weak but as broadly strong. It notes that since the 2005 reform, the RMB has appreciated about 23 percent against the dollar, from 8.27 to roughly 6.7 per dollar. The Bank for International Settlements’ nominal effective exchange rate for the RMB is up more than 50 percent over that period, while the real effective rate has risen 35 percent.

Beijing also points to recent performance, noting the RMB has appreciated roughly 9 percent against the dollar since 2025, even as other non-dollar currencies weakened.

The document reaffirms China’s managed floating regime, in which market forces play a “decisive role,” and states that the PBOC does not preset a target level for the currency and has phased out regular foreign-exchange intervention since 2017.

The Critic’s View

International analysts and trade partners remain unconvinced. As The New York Times reported, the RMB remains unusually weak in inflation-adjusted terms — down more than 14 percent against a basket of currencies since early 2022 — while China’s trade surplus has nearly doubled.

The Times also highlighted China’s export rebates, which refunded $318.2 billion in value-added tax to exporters last year, equal to about 1.5 percent of GDP and close to one-eighth of tax revenue. China has said it will stop battery-exporter rebates next year, and some economists are urging deeper cuts.

The EU has signaled growing frustration. “We need to rebalance our economic relationship to ensure it is fair, sustainable and mutually beneficial — the current situation is not sustainable,” EU Ambassador to China Caspar Veldkamp said in a September 22 speech, as cited by the Times.

Domestic Strains Behind the Diplomacy

Behind the firm tone lies a difficult domestic calculation. The RMB’s slide since early 2022 has coincided with a prolonged property downturn and weak consumer confidence, making exports one of the few reliable engines keeping growth near Beijing’s 4.5 to 5 percent target.

Economist Hao Yubiao, director of the National Economic Security Research Center at the Capital University of Economics and Business, told Xinhua that the onus is on deficit countries. “The declining trade competitiveness of some countries reflects their own structural difficulties; blaming other countries’ exchange rates is a shirking of one’s own adjustment responsibilities and does not help solve the problem,” he said.

The document frames global imbalances as the product of shifting divisions of labor, flaws in the international monetary system, and persistently high deficits and consumption in some economies — not the fault of surplus or deficit countries alone. It calls attempts to blame the RMB “a de facto political maneuver in the context of protectionism and unilateralism.”

What to Watch

The document offers few new policy commitments, but it does signal deeper engagement with international scrutiny. China said it will begin reporting additional foreign-exchange operation data to the IMF starting in 2027, a step that could blunt some criticism.

For now, both sides appear entrenched. Beijing insists its competitiveness is earned, not engineered; its critics say the currency remains artificially cheap and export subsidies too generous. Whether the statement defuses tensions or hardens positions may depend less on the words of the document than on the direction of the RMB — and on whether China delivers on reforms it says the 15th Five-Year Plan will bring.