In Depth: China’s Record Trade Surplus Spurs Reckoning for Yuan
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After years of trending weaker against the dollar, the yuan has been regaining its strength since last year. Since late April, the onshore yuan has appreciated nearly 4.4% against the dollar as of Monday, reversing a multiyear slide. As of the official close of trading that day, the yuan stood at just over 6.98 to the dollar.
A confluence of factors — including rate cuts by the U.S. Federal Reserve, a record-shattering Chinese trade surplus and shifting perceptions of U.S. economic strength under U.S. President Donald Trump — has ignited a debate about the yuan’s rally. Is it just a temporary bounce, or the beginning of a new cycle of appreciation? And more critically for the world’s second-largest economy, should policymakers in Beijing encourage the rally, fight it, or simply get out of the way?
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- The yuan has appreciated 4.4% against the dollar since late April 2025, amid a record $1.08 trillion Chinese trade surplus driven mainly by mechanical and electrical exports.
- Despite calls for a stronger yuan, China's central bank is managing the currency's appreciation cautiously, prioritizing exchange rate stability.
- Economists argue structural reform to boost weak domestic demand is crucial for China’s long-term economic health, beyond currency adjustments.
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- Bank of China
- Bank of China noted in a research report that since the second quarter of 2023, China's goods export price index has been significantly lower than the global index. This highlights China's competitive pricing in exports.
- Industrial Securities Co. Ltd.
- Industrial Securities Co. Ltd. published a research report suggesting a market re-evaluation of the relative economic strengths of the U.S. and China. This re-evaluation is expected to gradually reflect in the currencies of both nations.
- China International Capital Corp. Ltd.
- Yanliang Miao, chief strategist at China International Capital Corp. Ltd., believes the yuan is poised for strengthening. He argues that the dollar may enter a sustained period of weakness while China's manufacturing competitiveness grows. Miao suggests a stronger yuan could facilitate economic rebalancing by making imports cheaper, boosting purchasing power, and shifting resources towards the domestic economy.
- China Merchants Securities Co. Ltd.
- Zhang Jingjing, the chief macro analyst at China Merchants Securities Co. Ltd., commented on the yuan's exchange rate. She noted that if the central parity rate remains stronger than the spot rate, this could further accelerate the pace of appreciation for the yuan.
- Nomura
- According to Lu Ting, chief China economist at Nomura, the property slump has negatively impacted demand for raw materials and reduced consumer purchasing power, contributing to China's anemic domestic demand. Lu also cautioned that allowing the yuan to appreciate during a period of deflation without simultaneously stabilizing the property market and boosting consumption could backfire, potentially leading to slowing exports and deepening deflation.
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