China Faces a Currency Crossroads – Top Strategist Calls for a Stronger Yuan
One of China’s most influential economists has urged policymakers to rethink their currency stance, arguing that a rare opportunity has emerged for Beijing to let the yuan rise.
Key Takeaways
- A leading strategist from China’s top investment bank argues that a stronger yuan could now benefit China’s economy rather than hinder it.
- The currency is historically weak in real terms despite modest gains against the dollar, amplifying China’s trade imbalances.
- Analysts say appreciation could shift China toward consumption-driven growth — but only if paired with broader economic reforms.
Miao Yanliang, a leading strategist at China International Capital Corp, known for his work on foreign-exchange policy, says China could strengthen household spending power and ease geopolitical friction if it allowed the currency to appreciate more decisively.
According to his analysis, the timing may be unusually supportive: the US dollar appears to be entering a multi-year softening cycle, while Chinese manufacturing continues to climb the competitiveness ladder. That combination, he argues, opens a window for China to loosen its grip on the exchange rate without destabilizing growth or export activity.
A Growing Disconnect Between Trade and Currency
Despite headlines celebrating the yuan’s performance against the dollar, its position relative to a broader basket of currencies has quietly eroded. Adjusted for inflation, the yuan is now at its weakest real value in more than a decade. This has supercharged China’s already enormous goods surplus, which is approaching the trillion-dollar mark this year and raising alarms abroad about unchecked export dominance.
The strategist’s argument rests on a simple principle: a pricier yuan makes foreign goods cheaper for Chinese consumers. That, in turn, boosts domestic purchasing power and encourages the economy to lean more heavily on consumption rather than exports and investment. He notes that several Asian economies experienced similar growth transitions after strengthening their currencies in earlier decades.
Lessons From Asia — and From China Itself
Japan, South Korea, and Taiwan all saw their service sectors expand and domestic demand accelerate after major currency reforms. China experienced its own version of this shift after ditching its dollar peg in 2005. As the yuan rose in value over the following ten years, China’s current-account surplus collapsed and household consumption clawed back lost ground.
But the strategist warns that rapid appreciation — without the right macro policies in place — can cause serious damage. He cites Japan’s post-Plaza Accord experience, where a surging yen combined with loose monetary conditions sparked asset bubbles that later burst spectacularly. China, he suggests, would need a slow, carefully phased adjustment supported by targeted fiscal and structural reforms.
The Dollar Still Holds the Decisive Key
Looking across several decades of currency history, the strategist sees one recurring pattern: exchange-rate reforms tend to succeed only when the US dollar is weakening. If the Federal Reserve moves toward rate cuts, he believes the global environment could tilt even further in China’s favor, offering a smoother path toward a stronger yuan.
The strategist concludes with a broader warning: currency moves alone cannot rebalance the Chinese economy. Appreciation must be accompanied by deeper reforms — in taxation, social safety nets, and domestic-demand incentives — or the shift risks stalling before producing meaningful change. Without those systemic adjustments, he says, the currency cannot carry the burden of rebalancing on its own.
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Alexander Zdravkov is a person who always looks for the logic behind things. He has more than 3 years of experience in the crypto space, where he skillfully identifies new trends in the world of digital currencies. Whether providing in-depth analysis or daily reports on all topics, his deep understanding and enthusiasm for what he does make him a valuable member of the team.
