As Chinese President Xi Jinping prepares for his visit to the United States, the yuan is experiencing a significant appreciation. This comes as the U.S. has raised concerns over China's large trade surplus and has called for a stronger yuan, prompting China to proactively respond ahead of the U.S.-China summit.
The People's Bank of China has raised the yuan's reference exchange rate for eight consecutive trading days from September 11 to 22. The reference rate, which was 6.7743 yuan per dollar on September 11, has steadily declined, reaching 6.7459 yuan by September 22. This marks an appreciation of approximately 0.42% over the eight-day period.
The reference rate is calculated and announced daily by the China Foreign Exchange Trading System based on quotes from market-making banks before the interbank foreign exchange market opens. The onshore spot exchange rate typically fluctuates within a certain range around this reference rate. Therefore, lowering the reference rate can be interpreted as a signal from the foreign exchange authorities to allow or encourage a stronger yuan.
In the market, the yuan's strength has continued. On September 21, the onshore yuan rose to 6.6950 per dollar, the strongest level since January 2023, with the closing price reaching its highest since June 2022. On September 18, it even peaked at 6.6853 yuan, marking the highest level since June 2022.
This appreciation of the yuan is influenced by strong Chinese exports and companies selling dollars. China's trade surplus expanded to $119.1 billion in August, bringing the cumulative trade surplus for January to August to $805.5 billion.
At the same time, there are noticeable changes in China's exchange rate policy ahead of the U.S.-China summit. Reuters reports that the People's Bank of China has previously set a weaker reference rate than market expectations to suppress yuan appreciation, but recently it has raised the reference rate closer to market expectations, easing resistance to a stronger yuan. Goldman Sachs has suggested that gradual yuan appreciation is possible ahead of the summit, while OCBC has pointed out that this may be more of a policy stabilization measure rather than the start of a long-term appreciation cycle.
The U.S. continues to raise concerns about China's massive trade surplus. U.S. Treasury Secretary Scott V. Bensant criticized China's large current account surplus as 'unsustainable' during the G20 earlier this month. With China's exports increasing by 25% year-on-year in August, the issue of trade imbalance has emerged as a key agenda item for the upcoming U.S.-China summit.
* This article has been translated by AI.
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