1/6 Yicai: "Weak domestic demand has been the main cause of the Chinese yuan’s 15 percent depreciation since 2022, so robust and timely counter‑cyclical policies are needed to restore the currency to fair value."

2/6 According to Zhang Bin of the China Finance 40 Forum, "the exchange rate is mainly determined by how yuan assets stack up against overseas assets in terms of returns, rather than the amount of foreign exchange obtained by exports."

3/6 He goes on to note "the stark divergence between China’s record trade surpluses and the yuan’s depreciation since 2022, evidence that the currency is now undervalued," and warns "against relying on currency devaluation to offset tariff strains."

4/6 He is right. A weaker currency can certainly make Chinese exports more competitive, but it also reduces the domestic consumption share of GDP, which means it can only be expansionary if it causes net exports to rise faster than the reduction in domestic demand.

5/6 Given that domestic demand weakness is the main problem for the Chinese economy, that most Chinese production is for domestic consumption rather than exports, and that the world is increasingly reluctant to absorb larger Chinese trade surpluses, China would certainly...

6/6 benefit more from the domestic rebalancing impact of a stronger currency, but Beijing so far continues to favor the short-term benefits of supporting domestic supply over the medium- and long-term benefits of supporting the demand side.