China Research

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