Key facts
- China's central bank is intervening to slow the yuan's appreciation.
- A rapid yuan appreciation could hurt Chinese factory profit margins and unemployment.
- The Chinese economy is facing deflationary pressures.
- The US and Europe are demanding trade rebalancing from China.
China's central bank is taking steps to slow the appreciation of the yuan, as indicated by a weaker-than-expected daily fixing. This intervention comes amid pressure from the US and Europe for China to rebalance its trade relationships. Officials are concerned that a rapid strengthening of the yuan could negatively impact already thin factory profit margins and exacerbate unemployment within China, while doing little to address underlying structural economic issues that have led to deflation.
The Chinese currency is considered by some to be significantly undervalued, potentially by as much as 30%, and has been a background topic in discussions between Chinese and US leadership.