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US presses China to let yuan strengthen, avoids ‘currency manipulator’ label

Washington says it could still designate Beijing in future if evidence found that it limits currency’s strength

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China’s central bank recently strengthened the yuan’s daily fixing rate to break through the psychologically important level of 7 per US dollar for the first time since May 2023. Photo: dpa
Sylvia Ma

The United States has urged China to allow the yuan to appreciate, accusing Beijing of a lack of transparency and describing the currency as “substantially undervalued”.

“It is important that the Chinese authorities allow the RMB exchange rate to strengthen in a timely and orderly manner in line with market pressure and macroeconomic fundamentals,” the US Treasury said in a report released on Thursday.

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China’s exchange-rate policies stood out among major US trading partners for their “relative lack of transparency”, it added, though it stopped short of designating Beijing a currency manipulator.

The report, the latest semi-annual foreign currency review by the US Treasury, came amid Washington’s long-standing concern that Beijing may intentionally undervalue the yuan. It last labelled China a currency manipulator in 2019, during US President Donald Trump’s first term.

“This relative lack of transparency will not preclude [the] Treasury from designating China if available evidence suggests that it is intervening through formal or informal channels to resist RMB appreciation in the future,” the report said.

In contrast to the sharp depreciation seen during Trump’s first term – which fuelled speculation that Beijing had allowed the yuan to weaken to offset tariffs – the currency has trended stronger in “trade war 2.0”, despite a brief dip in early April when Washington announced sweeping “reciprocal tariffs” on nearly all its trading partners.

Still, the Chinese currency is widely seen as undervalued, with Goldman Sachs analysts assessing in a January 5 report that the yuan could be trading at about 25 per cent below its fair value against the US dollar.

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On Friday, the People’s Bank of China set the yuan’s midpoint rate – also known as the daily fixing rate – at 6.9678 to the US dollar, while offshore trading was slightly stronger in the afternoon at about 6.947. The currency has held stronger than seven per US dollar after the central bank strengthened it to break through the psychologically significant threshold on January 23.

Analysts broadly believe that China’s central bank may prefer a firmer currency, but remains cautious about too sharp an appreciation.

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