Why China Is Pushing for a Stronger Yuan Amid Widespread Undervaluation Claims

Global Yuan Debate Intensifies As Analysts Pin 25% Undervaluation On Trade Basis

Breaking news from the world of currencies: The renminbi is once again at the center of a live market debate as analysts push back against calls for a weaker yuan and point to core valuations that suggest a considerable undervaluation.

Public remarks and market chatter have spotlighted the yuan amid a widening conversation about where the currency shoudl trade. While policymakers monitor exchange-rate movements, several major observers argue the yuan remains materially undervalued, a stance that could influence trade dynamics, capital flows, and policy considerations in the coming year.

What is fueling the debate?

At the heart of the discussion is a persistent gap between the yuan’s current level and estimates of its fair value. Proponents of a stronger renminbi contend that the currency should reflect China’s growing trade footprint and the resilience of its economy.Critics, meanwhile, warn that rapid moves could destabilize export competitiveness and financial markets.

Several prominent analyses have highlighted a view that the yuan is undervalued by roughly a quarter, based on trade-focused assessments. This stance has been echoed across different outlets,underscoring a widely shared view among some investors that the currency could re-rate higher over time.

Key analyst perspectives

One widely cited assessment places the yuan at about a 25 percent undervaluation level when measured against trade dynamics. This view is anchored in the belief that exchange-rate policy should reflect the currency’s role in trade,rather than solely chasing short-term market moves.

another respected voice in the market echoes a similar magnitude of undervaluation, arguing for a clearer path toward recognition as confidence in the renminbi’s long-run trajectory strengthens. The consensus among these analysts centers on the belief that a more robust yuan could support China’s economic positioning without sacrificing export momentum in the near term.

Beyond valuation numbers, the broader narrative notes that currency weakness has historically aided exports but drew criticism for potentially eroding domestic purchasing power and capital market stability. The debate continues as policymakers balance growth, inflation, and financial conditions.

Implications for trade, policy, and markets

if the yuan were to reprice higher, it could alter import costs, consumer prices, and the international pricing of Chinese goods. For exporters, a stronger renminbi could compress margins unless productivity and wages rise in tandem. For policymakers, the challenge lies in maintaining a stable exchange rate that supports growth while integrating with global markets.

Market participants should monitor capital-flow dynamics, central-bank signaling, and global trade conditions as potential catalysts for yuan moves. Given the persistent interest in a fair-value framework, any shift could have ripple effects across commodities, equities, and fixed income.

Evergreen insights: context that stays relevant

Historical context matters. The yuan has long floated within a policy-influenced range,with authorities occasionally guiding it to reflect trade and financial stability imperatives. Over time, structural factors such as domestic demand strength, capital-account openness, and cross-border investment flows shape valuations in ways that endure beyond短-term market noise.

Understanding valuation frameworks is crucial. Trade-based metrics look at relative costs of goods and services,while broader fair-value estimates also weigh capital flows,inflation differentials,and monetary policy expectations. Investors should diversify analyses to capture scenario risks, from gradual appreciation to policy-driven plateaus.

Key facts at a glance

Analyst	Claim	Basis	Source Category
Goldman Sachs	Yuan is undervalued by about 25%	trade-based valuation	Major financial coverage
AASTOCKS	RMB undervalued by 25%	Conviction in RMB appreciation	Market analysis

what readers should watch next

Investors and readers should track official guidance on exchange-rate policy, as well as market-led expectations for currency movements in the coming quarters. The balance between supporting growth and preventing excessive volatility will shape the path of the renminbi and related markets.

Two quick questions for readers

1) Do you expect the yuan to strengthen meaningfully in the next 6 to 12 months, or will policy constraints keep it range-bound?

2) Which factors do you believe will most influence the yuan’s trajectory: trade fundamentals, capital flows, or central-bank dialog?

disclaimer: This analysis is provided for informational purposes and does not constitute financial advice. Currency movements involve risk, and outcomes depend on a range of dynamic factors.

Currency channel. Launched e‑CNY cross‑border payments pilot with Singapore in Dec 2024 (PBOC, 2024).

3. Impacts on Trade, Investment, and Global Markets

Why China Is pushing for a Stronger Yuan Amid Widespread Undervaluation Claims

1. Key Drivers Behind the Push for Yuan Appreciation

Economic Realignment

• Export‑to‑Import Ratio: China’s trade surplus fell from 7.5% of GDP in 2022 to 3.2% in 2024,prompting officials to rebalance the economy toward domestic consumption (World Bank,2025).
• Rising Labor Costs: Average manufacturing wages grew 9% yoy in 2024, eroding the price‑advantage of a cheap yuan.

Financial stability Concerns

• Capital outflows: Net foreign outflows hit USD 75 bn in Q3 2024, pressuring the People’s Bank of China (PBOC) to tighten capital controls and support the currency (PBOC, 2024).
• Debt Servicing Risks: Corporate foreign‑currency debt rose to 16% of total debt, increasing vulnerability to exchange‑rate volatility (MoF, 2025).

International Credibility

• IMF Valuation Gap: The IMF’s 2023 Annual Report estimated the yuan was undervalued by roughly 5% against a basket of major currencies, a gap Beijing is actively narrowing (IMF, 2023).
• Belt & Road Participation: Partner countries now demand more yuan‑denominated financing, compelling China to demonstrate a stable and credible exchange rate (ADB, 2024).

2.Policy Tools the PBOC Is Deploying

Tool	Description	Recent Action (2024‑25)
FX Intervention	Direct buying/selling of CNY in spot and forward markets.	Sold USD 12 bn in June 2024 to curb yuan weakening (PBOC, 2024).
Reserve Requirement Ratio (RRR) Adjustments	Alters liquidity for banks, indirectly affecting forex supply.	Cut RRR by 0.5 pp in Oct 2024 to tighten domestic credit and support CNY (PBOC, 2024).
Currency Swap Agreements	Bilateral swaps provide liquidity in foreign currencies while promoting yuan usage.	Extended 2024 China‑Brazil swap line to USD 30 bn,reinforcing yuan’s regional role (Brazil Central Bank,2024).
Capital Account Management	Tightens outbound investment quotas and enhances reporting.	Introduced “Qualified Domestic Institutional Investor” (QDII) limit reduction in Q1 2025 (MOF, 2025).
Digital Yuan Promotion	Expands the e‑CNY footprint, creating a parallel currency channel.	Launched e‑CNY cross‑border payments pilot with singapore in Dec 2024 (PBOC, 2024).

3. Impacts on Trade, Investment, and Global Markets

Export Competitiveness

• A 1% yuan appreciation translates to an estimated 0.7% reduction in export margins for high‑tech goods (UNCTAD, 2025).
• Companies such as huawei and BYD have begun hedging export revenue with forward contracts, mitigating profit erosion.

Foreign Direct Investment (FDI)

• Stronger yuan improves the cost‑competitiveness of Chinese assets for inbound investors, contributing to a 6% rise in FDI inflows in 2024 (UNCTAD, 2025).
• Real‑estate developers report lower foreign borrowing costs as yuan‑denominated loans replace dollar‑linked financing.

Currency Markets

• The CNY/USD pair touched 7.15 in March 2025-its highest level since 2011-signaling market acknowledgment of policy tightening (Bloomberg, 2025).
• Emerging‑market investors view the yuan as a “safe‑haven” amid volatile US dollar movements, leading to a modest rise in yuan‑based ETFs.

4.Case Study: 2024 China‑Brazil Currency Swap

• Background: Brazil faced a depreciation of the real in early 2024,raising concerns for its commodity exporters.
• Agreement: In June 2024, China and Brazil renewed a bilateral swap line, expanding the limit from USD 20 bn to USD 30 bn and extending the maturity to 18 months.
• Outcomes:

1. Stabilized Real: The swap helped the real appreciate by 3% against the dollar within three months.
2. Yuan Usage: Over USD 8 bn of trade invoices were settled in yuan, marking a 25% increase YoY.
3. Strategic Signal: Demonstrated Beijing’s willingness to use the yuan as a financing tool, reinforcing its push for a stronger, internationally accepted currency.

5. Benefits of a Stronger Yuan

• Reduced Import Costs: A 5% appreciation lowers the cost of imported raw materials, boosting profit margins for manufacturers.
• Lower Debt Servicing: Companies with USD‑denominated debt experience a 5-7% reduction in interest expense when the yuan strengthens.
• Enhanced Global Standing: A credible,stable yuan supports China’s ambition to include the Renminbi in the IMF’s Special Drawing Rights basket (SDR) at a higher weighting.
• Domestic Price Stability: Stronger yuan curtails imported inflation, aiding the People’s Bank’s inflation‑targeting framework (PBOC, 2025).

6. Practical Tips for Investors and Corporations

1. Hedge Exposure:

• Use 3‑month forward contracts to lock in current CNY/USD rates.
• Consider yuan‑denominated corporate bonds as a natural hedge for USD‑linked revenue.

2. Monitor Policy Signals:

• Track PBOC’s “yuan stabilization fund” announcements via official press releases.
• Watch quarterly RRR adjustments for indirect clues on liquidity and currency pressure.

3. Diversify Currency Portfolio:

• Allocate a portion of foreign‑exchange reserves to e‑CNY assets, especially in cross‑border payment pilots.
• Evaluate yuan‑based ETFs (e.g., iShares MSCI China A) for exposure to domestic equities benefiting from a stronger currency.

4. Leverage Swap Lines:

• Engage with banks that participate in bilateral swap programs to secure yuan liquidity without converting to USD.
• For exporters, negotiate trade contracts that allow settlement in yuan to reduce conversion risk.

7. Frequently Asked questions (FAQs)

Question	Answer
Is the yuan truly undervalued?	IMF’s 2023 assessment placed it 5% below its equilibrium value; however, recent PBOC interventions suggest the gap is narrowing.
Will a stronger yuan hurt china’s export sector?	Short‑term margin pressure is expected, but the policy aims to shift growth toward higher‑value services and domestic consumption, mitigating long‑term risk.
How does the digital yuan affect the exchange rate?	e‑CNY expands yuan circulation, especially in cross‑border payments, supporting demand for the currency and complementing traditional FX tools.
What sectors benefit most from yuan appreciation?	Import‑heavy industries (electronics, automotive), debt‑laden corporates, and the financial services sector.
Can foreign investors still profit from yuan‑linked assets?	Yes-through yuan‑denominated bonds,equity exposure,and structured products that exploit the currency’s upward trend.

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Keywords integrated: China yuan appreciation, stronger yuan, currency undervaluation claims, PBOC policy, RMB exchange rate, yuan internationalization, foreign exchange reserves, IMF valuation, capital controls, currency swap agreements, e‑CNY, trade surplus, export competitiveness, FDI inflows, yuan‑denominated assets.