China Defends Yuan Policy Amid European Pressure on Trade Surplus and Exports
China's Exchange Rate Policy and International Reactions
By Yukun Zhang and Kevin Yao
European Concerns Over Trade Surplus and Export Surge
BEIJING, Oct 8 (Reuters) - China pushed back against foreign criticism of its exchange-rate policy on Thursday, saying it has never pursued competitive depreciation, as European policymakers call for a stronger yuan to help curb China's record trade surplus and export surge.
As China's trade surplus swells, European leaders have intensified calls for a stronger yuan, fearing a "China Shock 2.0" from a fresh wave of Chinese exports.
PBOC's Response to Criticism
In a lengthy policy statement, the People's Bank of China (PBOC) rejected claims that China keeps the yuan artificially weak to gain a trade advantage, as the EU's trade chief Maros Sefcovic is in Beijing to discuss narrowing the bloc's trade deficit with China.
"China neither needs nor intends to obtain a trade-competitive advantage through exchange-rate depreciation, and has never engaged in competitive currency depreciation," the central bank said.
"Attributing a decline in domestic industrial competitiveness, the weakening of fiscal and financial discipline and complex structural problems simply to the exchange rates of other nations amounts to evading and shirking one's own responsibility for making necessary adjustments."
China's Trade Surplus and Export Outlook
China posted a record trade surplus of nearly $1.2 trillion in 2025, equivalent to about 6% of GDP, with analysts expecting exports of AI-related and other advanced technology products to help keep the surplus elevated this year.
China's trade strength stems from the global competitiveness of its industries, the central bank said, arguing that countries with large trade surpluses have historically been those with strong manufacturing sectors.
European and Global Perspectives on the Yuan
Concerns from European Leaders
European Central Bank President Christine Lagarde in June urged global leaders to discuss undervaluation of the Chinese currency as a facet of the imbalances endangering the global economy. The bloc is concerned about its trade imbalance with China, which reached €360.6 billion ($404 billion) in 2025, according to EU data, up 15% from the previous year.
German Chancellor Friedrich Merz has said the yuan is undervalued by 25% to 30% and called for a dialogue with China on monetary policy.
Analysis from Financial Institutions
Goldman Sachs said in August that the yuan is undervalued by at least 20% on some of its valuation models, arguing that a stronger currency would help narrow China's outsized trade and current-account surpluses and ease protectionist pressure from trading partners.
The PBOC said exchange rates reflect multiple economic and financial factors, rejecting claims that isolated model estimates prove the yuan is undervalued.
China's Market Approach and Future Plans
Market Forces and Exchange Rate Formation
Yuan Performance and Policy Since 2005
CHINA SAYS MARKET PLAYS DECISIVE ROLE
The yuan has climbed about 4% against the dollar this year despite a widening US-China yield gap.
The PBOC said the yuan has appreciated about 23% against the dollar since China's 2005 exchange-rate reform, strengthening from 8.27 yuan per dollar to around 6.7 currently.
It warned that the yuan's outlook remains uncertain, with forces for both appreciation and depreciation shaping its trajectory.
PBOC's Commitment to Flexibility
China lets the market play a decisive role in exchange-rate formation, the central bank said, adding that it does not preset exchange rate target levels or intervene in long-term exchange rate trends.
"The People's Bank of China does not preset an exchange-rate target level, does not intervene in the long-term trend of the exchange rate, and maintains exchange-rate flexibility and two-way movement," it said.
Future Reporting and Economic Strategy
China will report additional foreign exchange-related data to the International Monetary Fund starting from 2027, the central bank said.
The PBOC said China would pursue a domestic demand-led growth model under its 2026-2030 plan, boosting consumption, expanding effective investment and deepening high-level opening-up, while strengthening the domestic economy and helping drive a more balanced global economy.
($1 = 0.8937 euros)
(Reporting by Yukun Zhang, Qiaoyi Li, Liz Lee and Kevin YaoEditing by Peter Graff and Toby Chopra)
