Will AI reverse the renminbi’s rise?

The renminbi has shown a significant recovery against the US dollar since the latter half of 2025, sparking debate over its future trajectory. Some experts attribute the currency's appreciation to increased productivity in China's export-driven sectors, such as electric vehicles, renewable energy equipment, and shipbuilding. This phenomenon, known as the Balassa-Samuelson effect, suggests that higher productivity allows firms to compete more effectively internationally and offer higher wages, which can lead to higher prices for services.

However, this dynamic may not necessarily translate into further renminbi appreciation, particularly with the advent of AI-driven productivity gains. These gains could be most impactful in non-tradable services like healthcare, education, and local services, where AI can assist professionals in processing information and analyzing data.

If productivity rises in these services, they may become more competitive and experience lower prices, potentially countering the appreciation pressure on the renminbi. This scenario, known as a reverse Balassa-Samuelson effect, could be especially pronounced in China, where many sectors like education, healthcare, accommodation, and retail are locally oriented.

Policymakers should focus on ensuring that productivity gains are broadly distributed, rather than slowing AI adoption. Exchange-rate flexibility and opening up of services markets could help absorb the relative price adjustment, while fostering more tradable services could turn productivity gains into exports and income. Ultimately, AI could bring about a new wave of productivity, but its impact on the exchange rate may not mirror past occurrences.