A stronger renminbi is not quick fix for global imbalances

Beijing is once again the focus of discussions surrounding global macroeconomic imbalances, with the renminbi at the forefront of the debate. China's merchandise trade surplus has expanded to $1.2 trillion in 2025, and its manufacturing sector is becoming increasingly dominant. Financial and economic commentators largely agree that the renminbi is significantly undervalued, suggesting that China should let its currency appreciate sharply to shrink its surplus, ease competitive pressure on manufacturers worldwide, and help rebalance the global economy.

While this argument is politically appealing as it proposes a seemingly painless solution, it has a fatal flaw.

Before assuming that exchange-rate appreciation is suitable for China, one must examine the root cause of the currency's weakness. If it is primarily due to deliberate interventions aimed at expanding exports, then rapid appreciation would indeed be a relatively clean remedy. However, if the weakness reflects weak domestic demand, allowing the currency to appreciate without addressing the underlying issue would be ineffective.

The source highlights the importance of understanding the true source of China's currency weakness before proposing a solution, as simply assuming that exchange-rate appreciation is appropriate may not resolve the underlying economic challenges.