RMB exchange rate needs a broader perspective

Editor's note: Outlining its view on the renminbi exchange rate, the People's Bank of China said in a statement on Thursday that the country has adopted a managed floating exchange rate regime based on market supply and demand with reference to a basket of currencies. What really drives exchange-rate movements? How much of China's export competitiveness can be attributed to the currency? And what should a fair assessment of global trade imbalances take into account? Experts share their views with China Daily's Li Wei and Yao Yuxin. Excerpts follow.

Trade surpluses alone cannot explain exchange rates

The PBOC statement clarifies the principles underpinning China's exchange rate regime and cautions against attributing currency movements to a single indicator.

China operates a managed floating exchange-rate regime based on market supply and demand, with reference to a basket of currencies. The market plays a decisive role in exchange rate formation. The PBOC has said it does not set a target level for the renminbi or seek to alter its long-term trend, while preserving exchange-rate flexibility and two-way movement.

Exchange rates are shaped by multiple forces, including economic growth, monetary policy, financial markets, geopolitical developments and market expectations. The balance of payments is also broader than trade: alongside transactions in goods and services, it reflects investment and other cross-border financial flows.

A current-account surplus alone does not prove that a currency is undervalued or must appreciate, just as a deficit does not automatically mean that it must depreciate. Treating currency values as the sole cause of external imbalances overlooks this two-way relationship and the broader structural forces at work.

History offers a further lesson. In recent decades, the world's major surplus economies have changed, while its major deficit economies have remained relatively constant. This pattern highlights the role of domestic economic structures and the structural tensions inherent in the international monetary system in shaping global imbalances.

Rather than attributing these imbalances to other countries' exchange-rate policies, economies should examine the full range of underlying factors, including their own structural challenges and the workings of the international monetary system.

Zhao Xijun is the co-dean of the China Capital Market Research Institute at Renmin University of China.

Export strength goes beyond exchange rates

China's export model has become increasingly diversified, with export volumes and exchange rates no longer moving in lockstep. At times, they have even moved in opposite directions. This suggests that Chinese companies are competing internationally on more than price alone. They are responding more closely to consumer demand, improving product quality through technological advances, expanding their service offerings and providing after-sales support throughout the customer journey. China's industrial development and foreign trade, in other words, cannot be reduced to a simple relationship with exchange rates.

The same applies to trade balances more broadly: surpluses and deficits often reflect comparative advantages, resource endowments, industrial structures and stages of development, as well as market demand and consumer preferences.

For countries seeking to expand exports and strengthen their trade competitiveness, the priority should be to build more competitive industries and create a more conducive environment for growth. This means harnessing economies of scale, investing in innovation and responding more effectively to the needs and feedback of trading partners. A weaker currency cannot substitute for these long-term sources of competitiveness.

Pressuring surplus economies to adjust their exchange rates unilaterally risks doing more harm than good. It could constrain trade, leave some market demand unmet, push up prices and disrupt supply chains. Such pressure could also unsettle market expectations and amplify uncertainty across global markets. Durable rebalancing is more likely to come from stronger productive capacity and structural adjustment than from demands for currency moves.

Zhou Mi is a researcher at the Chinese Academy of International Trade and Economic Cooperation.

A fair trade debate must look both ways

Monetary policy is a macroeconomic tool designed to promote stability at home and abroad, not to secure trade advantages. As a responsible major economy, China has neither the need nor the intention to devalue its currency to gain a competitive edge.

The renminbi has remained broadly stable and edged higher, in line with market expectations. Its value reflects actual market transactions, not an arbitrary official decision. Claims that the currency is undervalued offer an incomplete and misleading account of exchange-rate dynamics.

A fair assessment of trade balances must look beyond goods to services. China runs a deficit in services trade. And yet, does it accuse other economies of being too successful in selling services abroad? Trade balances cannot be judged fairly through a single sector or metric.

For some countries, easing restrictions on technology exports to China would allow trade to reflect market demand more closely and could help reduce global imbalances.

A more balanced trading relationship requires examining both sides of the market: what an economy can sell abroad and what its consumers and businesses are able to buy from overseas. That also means providing a fair, reasonable and nondiscriminatory business environment for investors, including Chinese companies.

Han Han is an associate professor in the School of Economics at Peking University.

China's competitiveness goes beyond exchange rates

China's central bank has sent a clear and consistent message: China does not use currency depreciation as a tool to boost exports.

China follows a managed floating exchange rate regime based on market supply and demand, with reference to a basket of currencies. While market forces play the decisive role, the authorities also seek to prevent excessive short-term volatility that could threaten financial stability. This approach reflects China's economic realities as a major developing economy with financial markets that are still evolving.

The renminbi's generally gradual appreciation since 2025, despite some volatility earlier in the period,has helped ease external imbalances, reduce import costs and encourage Chinese companies to compete through technology, quality and branding rather than price alone. A stable currency also strengthens investor confidence and creates favorable conditions for the renminbi's internationalization. The goal is not one-way appreciation, but a broadly stable currency at a reasonable and balanced level, with room for fluctuations in both directions.

Attributing China's trade surplus and export competitiveness simply to its exchange rate misses the bigger picture. The renminbi has gone through several rounds of appreciation and depreciation, yet China's export competitiveness has not moved in lockstep with these changes.

China's manufacturing strength is built on its vast domestic market, comprehensive industrial and supply chains, a skilled workforce, sustained investment in research and development, efficient infrastructure and financial support for the real economy. Government coordination in basic research, industrial standards and major resource allocation has also played a role. Intense domestic competition has further pushed companies to innovate, control costs and improve efficiency.

These advantages reflect decades of productivity gains, industrial development and technological progress. They cannot be explained by short-term currency movements.

A broadly stable renminbi also benefits the global economy. It reduces uncertainty and costs for importers and exporters in pricing, settlement and currency hedging, while supporting more predictable trade, investment and global supply chains.

China's commitment to avoiding competitive devaluation can also help prevent currency disputes and trade protectionism from escalating among major economies.

At the same time, a stable yet flexible exchange rate can strengthen international confidence in renminbi-denominated assets and support the currency's wider use in cross-border trade, investment and reserves. It also contributes to China's continued opening-up.

By expanding domestic demand and increasing imports, China can help rebalance its economy while providing more stable demand and opportunities for global trade.

Yu Changhua is the deputy director of the China Center for Economic Research at Peking University.

A relatively stable currency reduces business uncertainty

The statement that China will not seek trade advantages through currency depreciation serves two purposes: it clarifies its position to the international community and stabilizes expectations at home.

China's export competitiveness comes mainly from its complete industrial supply chains, technological innovation and production efficiency, rather than a weaker currency. By reaffirming its commitment against competitive devaluation, the central bank has made clear that exchange rate policy will not be used to counter trade friction. This helps reduce misunderstandings and prevent trade disputes from spilling over into currency conflicts.

But this does not mean the renminbi can only appreciate. Two-way fluctuations driven by market forces remain normal. Companies should strengthen their resilience through product upgrades, market diversification and exchange rate risk management, rather than counting on depreciation to protect profits.

There is no contradiction between letting the market determine the exchange rate and maintaining its basic stability. The key is to distinguish normal market adjustments from excessive short-term fluctuations.

The exchange rate should respond to economic fundamentals, capital flows and market supply and demand, helping absorb external shocks. Stability does not mean defending a particular exchange rate level, much less adopting a fixed exchange rate. It means preventing irrational expectations and herd behavior from triggering sharp swings.

The central bank does not set a predetermined exchange rate target or seek to interfere with long-term market trends, but retains macroprudential tools and the ability to intervene in extreme circumstances.

A broadly stable renminbi also reduces uncertainty for businesses amid rising tariff, demand and geopolitical risks. It allows importers and exporters to price goods, sign contracts and plan cash flows with greater confidence. For Chinese companies, it helps stabilize export orders and limits sharp swings in the costs of imported materials and equipment.

Given China's deep integration into global supply chains, avoiding excessive currency volatility also supports more predictable pricing and contract fulfillment worldwide, while reducing the risk of competitive devaluation and protectionism reinforcing each other.

However, exchange rate stability cannot replace market expansion or industrial upgrading. Trade facilitation measures, renminbi settlement and hedging tools are also needed.

Looking ahead, the renminbi's internationalization should go beyond expanding settlement volumes. The goal is to make the currency attractive to hold, convenient to use and easier to manage risks in.

This requires improving cross-border payment systems and global clearing networks, deepening financial market opening, expanding renminbi-denominated investment and hedging products, and supporting offshore markets such as the Hong Kong Special Administrative Region.

Ultimately, the renminbi's international appeal depends on China's economic vitality, currency stability and confidence in its institutions. It cannot be built through one-way appreciation or administrative measures, nor should it rely on a rushed opening of the capital account.

Zeng Gang is head of Tianfu Liyan Financial Research Institute.

The views don't necessarily reflect those of China Daily. 

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