EU plans high-level China currency talks as fears of new trade shock mount

European finance and banking officials, led by director general Maarten Verwey, are set to meet with their Chinese counterparts in Beijing in the coming months to discuss China's currency policy. This comes as fears of a new trade shock mount among European industry, which is struggling due to what is being dubbed "China shock 2.0".

The talks, which would be the first formal meeting between EU and Chinese officials in over a decade, aim to persuade Beijing to stop holding down its currency to help bolster the bloc's struggling industry. The European Central Bank's Christine Lagarde, EU economy chief Valdis Dombrovskis, and Kyriakos Pierrakakis, president of the Eurogroup, are expected to lead the delegation to the talks.

The Chinese currency is not freely floated, which has led to suspicions that it is undervalued to boost exports. Estimates of the yuan's comparative valuation vary, with some suggesting it could be up to 21 per cent undervalued, while others put the figure at closer to 30 per cent. Beijing has pushed back against these accusations, citing official data showing that the yuan has strengthened by almost 10 per cent against the euro in 2026.

However, even this modest strengthening has been largely offset by flat inflation and falling producer prices in China. The European side approached the issue carefully, using diplomatic language and emphasizing the need for a holistic approach to addressing global imbalances. While the Bangkok talks did not achieve a breakthrough, they are seen as a stepping stone to more technical discussions on the topic, involving the exchange of detailed financial information between the parties.