(Dec 3): An economist at one of China’s biggest investment banks said the time has come for authorities to allow for more appreciation in the yuan, a decision that would give consumers greater spending power and cool trade tensions.
“The present moment may indeed be a window of opportunity to allow for yuan appreciation,” Miao Yanliang, the chief strategist of China International Capital Corp, said in a written interview.
The timing is especially favourable now because the US dollar could be entering a period of prolonged weakness, while China’s manufacturing grows increasingly competitive, said Miao, who was formerly the chief economist at China’s foreign-exchange regulator.
The comments add a prominent voice to a chorus of international economists calling for the yuan to appreciate even more, as it heads for its best annual performance in five years against the dollar. Accepting a stronger exchange rate would also be an overture to the US and other countries, helping China ward off the risk of a global backlash against an avalanche of its cheap exports.
While US President Donald Trump has long accused countries including China of maintaining undervalued exchange rates that helped them amass trade surpluses with the US, Beijing’s approach to managing its currency so far hasn’t featured prominently in trade talks between the rival superpowers.
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The experiences of nations across Asia, as well as China’s own history, show that a stronger currency could lead to more balanced growth in domestic and external demand, according to Miao.
“A moderate appreciation of the renminbi would help lower prices for imported goods, energy and services, effectively increasing Chinese residents’ purchasing power,” he said. “This would not only stimulate imports but also boost consumption of domestic products.”
China maintains a “managed float” of the yuan and has a number of tools to influence the exchange rate. Officials have repeatedly said they aim to keep the currency “basically stable”, allowing the yuan to appreciate slightly this year and at times using its daily fixing to discourage rapid moves.
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Many western economists and investors argue that the Chinese currency is significantly undervalued as a result. In their view, that gives a further competitive edge to exporters by boosting the appeal of cheap Chinese products at the expense of other countries, leading to huge imbalances in trade.
With China’s goods trade surplus swelling to almost US$1 trillion ($1.3 trillion) in the first 10 months of 2025, the yuan has strengthened only about 3% against the dollar so far this year. By contrast, other major currencies rallied against the greenback, a disconnect that caused the yuan to depreciate against a basket of China’s trading partners.
Taking into account domestic deflation and higher price growth elsewhere, the real effective exchange rate — a measure of the competitiveness of Chinese goods — is at the weakest level since 2012.
According to Miao, a stronger yuan would lower the profits of export-reliant, low value-added industries, driving capital and labour into sectors that focus on the domestic market. It would also reduce the trade surplus and lead to lower risks of disputes in global commerce, he said.
Miao cited the experiences of Japan, South Korea and Taiwan, where the services industry and domestic consumption expanded after undergoing currency reforms or major appreciation in the 1980s and 1990s.
For China, he pointed to the fact that the yuan strengthened about 30% against the dollar in the decade following 2005, when the currency’s peg to the greenback was dropped.
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That helped reduce China’s current account surplus from almost 10% of gross domestic product in 2007 to less than 1% in 2018. As a consequence, the share of household consumption in gross domestic product rebounded from a low of 35% in 2010 to almost 40% before the pandemic.
Miao cautioned that any reforms and adjustment of the exchange rate should be gradual and prudent.
In Japan, the yen’s rapid appreciation in the wake of the 1985 Plaza Accord — coupled with excessively loose monetary and credit policies — eventually led to asset bubbles and huge swings in markets and the economy, he said.
Based on a review of more than 60 countries’ experience since the 1970s, the dollar also plays a key role in determining the success of exchange rate reforms, according to Miao.
The overhauls undertaken during a weak dollar cycle are usually successful, he said. A shift toward de-dollarisation and the US Federal Reserve’s resumption of rate cuts could drive the US currency’s depreciation in the long term, he said.
In addition, adjustments in the exchange rate must be accompanied by other policies to achieve economic rebalancing, according to Miao, who stressed that monetary and fiscal policies as well as reforms of social security and tax systems are also needed.
The key to countering any deflationary pressure from more currency appreciation is to adopt fiscal and monetary easing at the same time, which would lift economic growth and translate into higher domestic interest rates and attract capital inflows, Miao said in an interview with Bloomberg TV on Wednesday.
He cited the example of the massive stimulus measures adopted by the US following the Covid pandemic, which strengthened the dollar despite initial fears over the potential drag on the currency.
“For China’s low inflation, the cure really lies in fiscal expansion, fiscal stimulus,” Miao told Bloomberg TV, adding that there was “no magic bullet or panacea”.
“Combined with monetary easing and fiscal stimulus, you will have both higher inflation and a stronger currency,” he said.
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