U.S. Treasury labels yuan largely undervalued, warns China

10:20

By: Dakir Madiha

U.S. Treasury labels yuan largely undervalued, warns China

The U.S. Treasury labeled China's yuan "largely undervalued" on Thursday and urged Beijing to let it appreciate, toughening its tone in the semiannual currency report while stopping short of naming China a currency manipulator. The assessment cites China's "extremely large and growing external surpluses," warning that Beijing's opacity on exchange rate practices sets it apart as a "unique case among major economies."

The report lands as China posted a record $1.2 trillion trade surplus in 2025, up 20% from the prior year and the largest ever for any nation. Exports rose 5.5% while imports held steady, underscoring Beijing's ongoing reliance on foreign markets to buoy economic output, Treasury officials said. "Given China's extremely large and growing external surpluses and its substantially undervalued exchange rate, it is important that Chinese authorities allow the RMB exchange rate to strengthen in a timely and orderly way in line with market pressures and macroeconomic fundamentals," the report stated.

This view aligns with major financial institutions. Goldman Sachs estimated in December the yuan is 25% undervalued against models projecting an optimal rate, calling it a "highest-conviction trade." The International Monetary Fund pegs the renminbi at least 18% undervalued.

Under President Trump's America First trade policy, Treasury tightened monitoring criteria, expanding its watchlist to 10 economies: China, Japan, South Korea, Taiwan, Thailand, Singapore, Vietnam, Germany, Ireland, and Switzerland. Thailand joins newly, while others carried over. Treasury noted currency deals with six partners Japan, Switzerland, Malaysia, Thailand, South Korea, and Taiwan but not China. The report cautions China's opacity "will not preclude Treasury from designating China if available evidence suggests it intervenes through formal or informal channels to resist RMB appreciation in the future."

China's central bank appears to tolerate modest yuan gains. Earlier this month, the People's Bank of China set its daily reference rate at 6.9929 per dollar, the highest since May 2023 and the first below 7 in nearly three years. Analysts say Beijing balances international pressure on exchange practices with shielding exporters that offset weak domestic demand amid a prolonged property slump. The Council on Foreign Relations noted the yuan now faces "substantial appreciation pressure," but Beijing hesitates to allow gains beyond 2-3% to curb speculation.