China’s Trade Strength Rests on Competitiveness, Not Currency Depreciation
Dragon Media News Desk
As international debate over the yuan’s valuation intensifies, China has reiterated its position on exchange-rate policy. The People’s Bank of China said in a policy statement issued Thursday that China has neither the need nor the intention to devalue its currency to gain a trade advantage. It said that treating exchange rates as the primary cause of trade imbalances oversimplifies a complex economic relationship.
The conventional view that a stronger currency makes exports more expensive and weakens their competitiveness reflects a short-term, static perspective, analysts say. Over the long term, export competitiveness is shaped by more than exchange rates. China’s experience also suggests there is no simple, direct link between the yuan’s value and export performance.
According to the central bank, the yuan appreciated by about 9 percent against the U.S. dollar from 2020 to 2021. During the same period, China’s share of global exports rose by 1.7 percentage points. By contrast, in 2022 the yuan depreciated by more than 8 percent against the dollar, while China’s share of global exports fell by 0.7 percentage points. Guan Tao, chief economist at Huafu Securities, said the figures show that China’s imports and exports are relatively insensitive to exchange-rate movements. China’s goods trade surplus and current-account surplus also have no simple linear relationship with the exchange rate.
The central bank says attributing China’s export strength solely to currency depreciation or alleged “overcapacity” reflects a failure to understand the complexity and competitiveness of its industrial sector. China’s trade growth is underpinned by its vast domestic market, comprehensive industrial and supply chains, well-developed infrastructure, abundant skilled workers, and steadily improving research and innovation capabilities.
Dong Ximiao, chief economist at China Merchants Union Consumer Finance, said that historically, major economies with large trade surpluses have generally been those with strong industrial competitiveness. The deeper challenges facing economies with trade deficits may lie in structural factors such as low savings rates, high consumption and insufficient industrial competitiveness. These problems cannot be solved simply by questioning the exchange rates of their trading partners.
China says it has refrained from pursuing beggar-thy-neighbor policies or competitive devaluation, even as currencies in neighboring countries have weakened. This year, the yuan has strengthened beyond the 6.7-per-dollar mark in both the onshore and offshore markets. According to the central bank, the yuan has experienced cycles of appreciation and depreciation over the past two decades. Such two-way movements are consistent with efforts to make the exchange rate more flexible and market-oriented. With factors that could push the yuan either higher or lower still in play, its future direction remains uncertain.
China has also called for international cooperation to address global trade imbalances. At last month’s meeting of G20 finance ministers and central bank governors, People’s Bank of China Governor Pan Gongsheng said structural reforms were needed across economies. Economies with deficits should reduce fiscal shortfalls and increase domestic savings, while surplus economies should appropriately promote consumption and investment. China argues that developing long-term policy plans and fulfilling stated commitments is an effective way to address trade imbalances.
