China Research

A discussion forum on emerging markets, mainly China – from a macro, micro, institutional and corporate angle.

Weakening Chinese yuan not only due to Trump

May 21, 2025

The Chinese yuan (also called renminbi, RMB or CNY) has weakened visibly one more time vis à-vis the American dollar (USD), this time since last fall – though not very lately for (temporary?) stabilization reasons. The current depreciation (trend?) against the euro, however, started only in the first days of February 2025, two weeks after the inauguration of President Trump.

One may wonder whether the latest yuan movements have been caused directly by President Trump’s trade policy or/also as the result of a strategic Chinese depreciation policy already since 2022 in order to improve competitiveness and exports as a reaction on insufficient domestic growth since a few years ago. Probably, both aspects matter.

Sizeable weakening of the yuan

Some numbers may give a hint on the trend of the RMB vis-à-vis the USD and the euro:

# USD/CNY:
Feb 26, 2022: 6,32; Sep 9, 2023: 7,34; Sep 27, 2024: 7,01; Jan 24, 2025: 7,24; Apr 11, 2025: 7,29; May 16, 2025: 7,21
(see the currency graph: https://www.google.com/finance/quote/USD-CNY?window=5Y).

The graph shows that the RMB has weakened by around 12 percent in the past three years compared to 3-4 percent since last fall. This should underline the assumption that there has been a Chinese depreciation strategy against the USD not only because of expected and verified American tariff action but already since some years ago – the latter explanation probably because of insufficient domestic demand.

# EUR/CNY:
Jul 9, 2022: 6,81; Jul 15, 2023: 8,81; Aug 17, 2024: 7,91; Feb 1, 2025: 7,45; April 17, 2025: 8,30; May 16, 2025: 8,05

(see the currency graph: https://www.google.com/finance/quote/EUR-CNY?sa=X&ved=2ahUKEwjk8tSwnKuNAxWXFhAIHe_QDMwQmY0JegQIHBAu&window=5Y).

If we go back in time a couple of years, one can recognize that the RMB obviously has weakened substantially vis-à-vis the euro but some negative Trump effect since the beginning of 2025 can be noted for the CNY/EUR rate as well.

Depreciation strategy also before Trump

It can be summarized: Certain weakening developments of the yuan were visible already before President Trump’s second entry into the White House, for example vis-a-vis the American dollar (buck). For this reason, it may be premature to draw definite conclusions on the occasionally mentioned theory that China has – and still is – manipulating its currency just because of the ongoing trade war with the U.S. Official Chinese statements on this issue are, of course, not available.

In general terms, I would like to argue that China already for quite some time has preferred a weakening trend of the yuan, particularly when it comes to the downward trend of the yuan against the dollar which has been rolling on already since spring 2022.
In this context, it could be helpful to explain somewhat further how China conducts the suspected (orderly) manipulation of its currency. Therefore, it may be appropriate to make some general remarks on Chinese exchange rate policy.

After having applied a more or less fixed-rate policy against the USD through many years, China’s central bank – the PBoC (People’s Bank of China) – conducts since a decade ago an exchange policy that limits daily CNY fluctuations to 2 % up or down with reference to a basket of 24 currencies. Experts call this approach often “managed floating”. The dollar dominates in this basket (share 22,4%), followed by the euro (16,3%) and the yen (11,4%). This basket is technically valid in homeland China but the offshore yuan in Hong Kong (CNH) is not controlled and usually quite closely following the CNY.

What could be observed in recent quarters is according to certain analysts is a decrease of the official currency reserves in Beijing and at the same time an increase of dollar assets by China’s state-owned commercial banks – meaning that the net of these two positions has been negative for the exchange rate of the yuan.

The point with this (new?) kind of intervention policy should probably be that yuan-weakening purchases of USD papers by the commercial banks tend to be much more hidden and unobserved than the activities of the central bank PBoC – a transparency shortcoming that I have been confronted with in this analysis as well. But the importance of this possible manipulation strategy should not be exaggerated.

Conclusion: Chinese exchange rate policy remains a conumdrum
Poor transparency impedes from finding good or safe guidelines as regards current Chinese exchange-rate policy. But I would believe all the same that the recent yuan depreciations do not reflect random but were – or are – instead intended by China’s political leadership.

However: To what extent this policy approach can be interpreted as an (anticipated) answer to Trump’s (expected) tariffs against China or as an already earlier decided strategy might be interpreted as a conundrum. My own analysis on the other hand points, however, at both views, i.e. that there has been a Chinese depreciation strategy not only since Trump 2 – despite the strong probability that also Trump 2 serves as an argument for a weaker yuan in recent quarters. But this seems having been strived with cautious and not too provoking forex management by the political leaders!

It should not be forgotten that Chinese political leaders in the longer run still want to transform the renminbi into an attractive global currency. Such an objective does not allow for an irritating competitive depreciation strategy.

Hubert Fromlet
Affiliate Professor at the School of Business and Economics, Linnaeus University

India – the next global superpower

May 7, 2025

Recently, in 2023, India has become the most populous country in the world – often commented with the additional remark that China on the other hand still has a much larger economy. This is certainly true. However, India’s economic growth rate is now exceeding China’s, causing quite some increase of foreign interest in this giant country. But there are also other reasons for the conclusion that India is on its way to become a political and economic superpower. I therefore finally decided to formulate the headline of this article without a question mark.

India seeks more international influence and recognition

India is a country with many (changing) faces. I remember my first trips to India in the early 1990s when foreign influence on merchandise and service markets was almost absent. I could observe this with my own eyes. Today, India looks quite different, modern at many places but not everywhere. India’s GDP per capita is still very low and indeed visibly weak when getting around – but the middle class is at the same time expanding quickly and the number of dollar millionaires as well.

In other words: India needs good economic growth to move on further. And we know that economic growth is a function of productivity gains, hours worked and capital accumulation. Improvements in these areas are necessary and will happen in India. But how fast in a country that historically has been moving slowly?

The answer to this question depends to a high extent on India’s opening-up policy and attractiveness to foreign investors. In this respect, it seems plausible to be fairly optimistic, both due to China’s structural slowdown of economic growth and to president Trump’s confusing economic policy which obviously favors India with its balanced foreign policy and good growth potential. So chances of quite rapidly growing FDI in India on trend are quite good – despite disappointing numbers in the past few quarters.

Both Western politicians and business people rush currently to India more than ever to find out more about the opportunities that India may offer in the foreseeable future. Both the U.S. and the EU are looking for (attractive) trade agreements with India. Other countries such as the UK are trying to do so as well. India is diplomatically and politically already treated as a global superpower. And what about the economy in such a superpower context?

Prime Minister Narendra Modi’s comment on the issue above last fall summarized nicely India’s optimism about his country’s future: ”India is becoming a prime center of diversification and de-risking as a hub of global trade and manufacturing. Given this scenario, now is the opportune time for … companies to make in India, and make for the world” (October 2024 at the 18th Asia-Pacific Conference of German Businesses).

India receives more Western “sympathy points” than China

Economic growth of China has been slowing down quite dramatically in the past two decades, from double-digit increases to less than half whereas the GDP development of India was the other way around. In 2007, China’s GDP-growth rate was almost twice as high as India’s, 14.2 compared to 7.7 percent. The corresponding growth numbers in 2024 were 5.4 percent for China and about 6.4 percent for India (without discussing here the correctness of Chinese GDP statistics). On the other hand, China’s GDP per capita is still much higher than India’s.

Sure, the world knows that there is also a lot of technological progress in China. However, the world also knows about China’s economic imbalances which will mean an enormous burden many years ahead – such as the worrisome private and public debt situation (see Fromlet, 2025 https://blogg.lnu.se/china-research/?p=3615), massive government support to many SOEs, the hidden huge amounts of bad bank loans, the high (youth) unemployment and the demographic challenges – developments and trends that do not exist in India or to a more limited extent.

As far as India’s challenges are concerned, progress is particularly needed when it comes to infrastructure, education on a broad level and – impacting the first two examples – the insufficient public fiscal position. But public debt is obviously considered – right or wrong – as little growth-impeding by the global community outside India. And – irrationally – even more in the case of China.

All these impressions and interpretations have led me since some time ago to the conclusion that India – as I use to put it – nowadays gains more “Western sympathy points” than China does (even if markets should not underestimate China’s strategies for its technological future).

India’s potential GDP growth should remain higher than China’s

Officially calculated GDP growth and real or underlying GDP growth are historically not always the same in China, sometimes are official numbers too negative but mostly too positive. Currently, official Chinese growth objectives may be too optimistic for 2025 with announced +5 percent (which could end up at 3,5 percent in reality).

For India on the other hand, GDP growth could be as much as around 6 percent in both 2025 and 2026. Such an outlook should look promising to foreign business people. Particularly since these increases could be close to current potential GDP growth in both countries – according to my guess 3-3.5 percent in China and 6-6.5 percent in India. In the long run, potential GDP growth may be even higher than shown here for India – and lower for China. But this cannot be predicted today.

Of course, my potential growth assumptions are not more than “guestimates”. The results of China’s technological voyage cannot be foreseen today – and certainly not either India’s possible catching-up process with all its complicated details.

Despite these uncertainties, India has relatively good chances to become an economic superpower also globally which makes the country most probably even more interesting to many foreign companies in the years to come. Sure, China’s GDP per capita is still around five times higher than India’s but this relation indicates also that there still should exist considerable potential growth reserves in India – if reasonable politics remain in place!

India from a business perspective

Possible or planned commercial activities in an emerging market country like India urges certainly for a lot of careful (analytical) preparation. Even if India is more transparent than China, India is neither easy to analyze nor commercially easy to handle (see Fromlet 2024 https://blogg.lnu.se/china-research/?p=3501). Foreign business people should not underestimate these two challenges. They should also observe that India still applies too much protectionism as well – a matter of fact that is often forgotten.

Currently, India has to navigate in the changing global economy. The world is shifting alliances, supply chains and growth centers which makes India increasingly interesting to the global business community for FDI, sales and purchasing.

A number of competitive advantages could favor India’s corporate development substantially. The marketing of India as an attractive market for sales, sourcing and IT development is particularly based on

¤ India’s pretty good potential GDP growth
¤ the advantages of dealing with a democratic country and the rule of law ¤ the relative political and economic stability of the country
¤ the independent central bank
¤ institutional progress in different areas
¤ the enormous size of the country and the market
¤ the young average age of the working force (28 years, 45 years in Germany)
¤ what the Indians call a “vibrant society”.

Interesting areas for foreign business are according to many Indian sources among others: manufacturing, digitalization, (financial)services, infrastructure, education, etc.

Conclusion: Without doubt, India is currently more and more developing as the new superstar on the global political and economic horizon – certainly to some extent at the expense of China. But things should not be exaggerated. Consider, for example, the long-term tensions or conflicts with Pakistan. Careful market analysis is unavoidable, both in political, macroeconomic and microeconomic (corporate) terms. Pure herd behavior should be avoided – despite the promising growth potential that India indeed offers.

It should not be neglected that also India has its future political, social and economic challenges. Maybe democracy and India’s favorable demographic conditions will be the biggest competitive advantages of India in the long run.

Hubert Fromlet
Affiliate Professor at the School of Business and Economics, Linnaeus University

President Trump’s trade policy – bad news for lagging (emerging) countries

April 25, 2025

The whole world has learned in the past few weeks that American President Donald Trump does not understand cross-border trade policy – or does not want to understand it. More or less all experts inside and outside the U.S. have accused him of neglecting the most obvious advantage of free trade and the disadvantages of protectionism and raising tariffs on such a broad global scale.
What should be discussed more in our part of the world are the bad consequences that affect many of the emerging and less developed countries by all the single bilateral trade accords the U.S. wants to achieve, primarily with strategically important trading partners such as India and possibly also China.

Bilateral trade deals have a lot of disadvantages
We know from reality that there exist both bilateral and multilateral trade agreements which should not be equalized with more ambitious pure free trade agreements. Let’s begin by discussing somewhat what bilateral trade agreements are about – the kind of trade agreement that President Trump and his administration clearly prefer. This was – by the way – obvious already in February 2017 (https://www.brookings.edu/articles/what-will-trumps-embrace-of-bilateralism-mean-for-americas-trade-partners/).

We know that it is not difficult to recognize that a bilateral trade agreement practically uses to be easier and faster to achieve than a multilateral one. The main reason for this is that bilateral negotiations only have two sides, in our already mentioned case, for example, the U.S. and India. Multilateral trade negotiations with several or many involved countries on the other hand can take years or even decades. However, multilateral trade agreements can create a larger harmonized market than bilateral trade agreements, provide connected countries with more competition and innovative power plus, consequently, lower prices. They can also help to resolve trade disputes via the currently disarmed WTO and promote cooperation and stability among countries.

In my view, the time-limited duration of bilateral trade negotiations compared to multilateral trade talks manifests itself as the major advantage that this option of trade negotiation usually enjoys. Otherwise, quite a number of disadvantages can be found.
Among the countries that initially are particularly affected by Trump’s tariffs are, for example, China, Lesotho, Cambodia, Laos, Vietnam, Sri Lanka, Syria, Botswana, Bangladesh, Thailand, Indonesia, Angola, South Africa, Pakistan, India, Malaysia, etc (see https://www.cbsnews.com/news/trump-reciprocal-tariffs-liberation-day-list/).
Many other emerging and less advanced countries could be quoted as well, spread all over the globe – countries that are strongly hit by the irresponsible Trump tariffs. Consequently, it cannot be regarded as a surprise that that more than 50 affected countries already a few days after the so-called “Liberation day” on April 2 had announced – according to Trump advisers – that they wanted to negotiate over the import taxes they have been confronted with (https://www.pbs.org/newshour/politics/trump-advisers-say-more-than-50-countries-have-reached-out-for-tariff-talks-with-white-house). Other sources speak currently about stronger interest from even more countries (https://www.independent.co.uk/news/world/americas/us-politics/trump-tariff-trade-deal-countries-b2737526.html). We know that it will be bilateral negotiations accordingly.

Bilateral trade negotiations for so many countries mean by definition that different results will come out for the participating countries – leading to further injustice between suffering countries. Different results are logical because of the fact that bilateral trade negotiations have no underlying support by the WTO. This means also that more and more bilateral trade agreements tend to hollow out the position of the WTO – very much at the expense of outsiders among emerging and less developed countries. From this point of view, multilateral agreements are more beneficial to developing countries than bilateral ones because the included countries become more competitive as a group.
In general terms, larger corporations are supposed to benefit the most from bilateral trade agreements because they usually have bigger resources for different competition-improving activities than smaller and medium-sized companies.

Conclusion – disparities may increase, also geographically
Altogether, analysts should be cautious about positive trade interpretations after the ongoing or forthcoming bilateral negotiations between the U.S. and a significant number of emerging and less developed countries, particularly since the results may differ substantially between non-OECD countries both in trade details and geographically. It should be a good idea to look deeper into the negotiated trade deals between the U.S. and the tariff-affected countries – and what they really mean to them.

Hubert Fromlet
Affiliate Professor at the School of Business and Economics, Linnaeus University