Full Breakdown
China’s Central Bank Rejects Yuan Undervaluation Claims Ahead of EU Trade Talks
By Drooid · · How we work
Core Event: PBOC’s Formal Defense of the Yuan (Oct 8)
On Oct 8, the People’s Bank of China (PBOC) issued a policy statement denying that China seeks a trade-competitive advantage through yuan depreciation. The document emphasized that the yuan is managed on a floating basis, that market forces determine its level, and that China does not set a target or intervene in long-term trends. It also announced that China will begin reporting foreign-exchange operation data to the International Monetary Fund starting in 2027.
Background & Context
European officials have linked the yuan’s recent strength to the EU’s widening trade deficit with China, which reached €360.6 billion in 2025, up 15% from the prior year. German Chancellor Friedrich Merz and European Central Bank President Christine Lagarde have called for a stronger yuan. The PBOC’s statement arrived as EU Trade Commissioner Maros Sefcovic began two-day negotiations with Chinese Commerce Minister Wang Wentao in Beijing.
Data & Statistics
- The offshore yuan traded around 6.7 per dollar on Oct 8, a 4% gain this year.
- Since the 2005 reform, the yuan has appreciated roughly 23% against the dollar, moving from 8.27 to about 6.7 per dollar.
- The IMF’s July 2026 External Sector Report estimated the real effective exchange rate was 12%–20% undervalued in 2025; the PBOC rejected this assessment.
- China posted a record trade surplus of nearly $1.2 trillion in 2025, about 6% of GDP.
Official Statements & Responses
The bank highlighted that trade has become less sensitive to currency movements as firms upgrade products and increase hedging. It also noted that it will continue a “domestic demand-led growth model” under its 2026-2030 plan, aiming to boost consumption and high-standard opening-up.
Criticism & Opposition
European policymakers argue that a weak yuan fuels China’s export surge. Maros Sefcovic has pressed for a stronger yuan during the Beijing talks. Friedrich Merz claims the yuan is undervalued by 25%–30%. Goldman Sachs analysts estimate the yuan is undervalued by at least 20% and contend that a stronger currency would narrow China’s current-account surplus.
Conflicting Reports & Gaps
- Undervaluation estimates: The IMF’s 12%–20% figure contrasts with the PBOC’s dismissal of any “official evidence” of misvaluation.
- Appreciation metrics: Reuters cites a 4% gain this year, while Bloomberg notes a 9% rise since 2025 and a cumulative 23% increase since 2005. Sources do not reconcile these differing time frames.
- Impact on trade: The PBOC points to periods where the yuan appreciated while export share grew; European officials maintain that a stronger yuan would directly reduce the trade gap. No consensus is provided on the causal relationship.
Verbatim Quotes
- “The strong pushback against a change of exchange rate policy right ahead of the EU trade negotiations suggests a firmer stance towards the EU than the US, in our view, and that exchange rate policy is non-negotiable with the EU,” — Becky Liu, head of Greater China macro strategy at Standard Chartered Bank
- “This is a pre-negotiation positioning document, not a change in exchange-rate regime,” — Tommy Xie, head of Asia macro research at Oversea-Chinese Banking Corp
What’s Next
PBOC Governor Pan Gongsheng is scheduled to speak at a Deutsche Bank event during the upcoming IMF-World Bank meetings in Bangkok. China’s commitment to report additional foreign-exchange data to the IMF from 2027 signals a move toward greater transparency, though details on public disclosure remain unspecified. The EU trade negotiations will continue in the weeks following the Beijing meeting, with the yuan’s trajectory likely to remain a focal point.