18th October 2026
Pressure is mounting on Beijing to strengthen the yuan as Chinese exports surge, industrial competitors struggle and governments question whether the global trading system is operating on a level playing field.
China's growing trade surplus is becoming an increasingly difficult problem for the rest of the world. Its manufacturers are selling vast quantities of goods overseas, while businesses in Europe and elsewhere face intensifying competition. One factor attracting growing attention is the value of China's currency, the renminbi, commonly known as the yuan.
The concern is that the currency is undervalued, making Chinese goods cheaper for foreign buyers than they would otherwise be. If that advantage is sustained, it can help Chinese manufacturers expand exports while making it harder for competing businesses in Britain, Europe and the United States to match their prices.
The issue is examined against a wider background of international financial pressures in the Centre for Economic Policy Research's report, Geneva 29: Changing Structure and Challenges of the International Financial System. It raises important questions about how currencies, international financial flows and persistent trade imbalances interact.
Why the value of China's currency matters
Exchange rates influence the prices countries pay for imports and receive for exports. If the yuan is weaker than economic conditions would otherwise justify, overseas customers can buy Chinese products relatively cheaply. At the same time, foreign goods become more expensive for Chinese consumers.
This can encourage exports and discourage imports, contributing to a trade surplus. The effect is particularly significant in manufacturing, where companies compete on relatively narrow profit margins and small price differences can influence purchasing decisions.
However, currency values are only part of the explanation for China's success. Its extensive industrial supply chains, infrastructure, skilled workforce, economies of scale and investment in technology also help manufacturers produce goods competitively.
The difficulty for trading partners is separating the benefits of genuine industrial efficiency from any advantage arising from an exchange rate that does not adequately reflect underlying economic conditions.
The International Monetary Fund's assessment of China's external position has raised concerns about this imbalance. Its 2026 country report estimated that the renminbi was undervalued in real effective terms in 2025, although the precise size of the gap depends on the economic model used. Beijing disputes the argument that it deliberately keeps its currency weak to gain a competitive advantage.
A trade surplus that is difficult to ignore
The scale of China's exports has intensified the debate. In September 2026, Chinese exports rose by 36.3% compared with a year earlier, according to figures reported by the Financial Times. The monthly trade surplus reached a record $133.5 billion, while the surplus for the first nine months of the year totalled $938.1 billion.
These figures reflect more than currency policy. Strong demand for technology products, including equipment associated with artificial intelligence, has also contributed to export growth. Nevertheless, the combination of enormous manufacturing capacity, strong exports and comparatively weak domestic demand is adding to international concern.
When Chinese households and businesses do not buy enough to absorb the country's productive capacity, manufacturers have a greater incentive to sell abroad. If the yuan is also relatively cheap, overseas markets become even more attractive.
For importing countries, the immediate benefit is lower prices. Households can buy cheaper consumer goods, while businesses can obtain affordable machinery, components and equipment. But the longer-term consequences can be more complicated.
Domestic manufacturers may lose sales, investment may be postponed and jobs may come under pressure. Once a factory closes or a supply chain disappears, rebuilding that capacity can be difficult and expensive.
Why Britain and Europe should be concerned
The United Kingdom is exposed to this debate even though it is no longer an EU member. British manufacturers must compete in international markets, while retailers and consumers benefit from access to competitively priced imports.
For Scotland, the implications extend beyond the high street. Engineering, renewable-energy supply chains, specialist manufacturing and other industrial businesses depend on being able to compete on price, quality and technical expertise.
Cheap Chinese components can help British businesses reduce their costs. Yet sustained pressure from lower-priced finished goods can also make it harder for domestic producers to justify investment in new equipment, training and production facilities.
Europe faces a particularly difficult choice. It wants affordable goods and access to the Chinese market, but it also wants to preserve its manufacturing base. The European Union has already imposed additional duties on Chinese electric vehicles, citing concerns about unfair subsidies. Broader disagreements over industrial capacity, market access and trade imbalances are now adding to the pressure.
If governments conclude that competition is being distorted, further tariffs, trade investigations or other restrictions become more likely. Such measures may protect particular industries, but they can also raise prices for consumers and provoke retaliation against exporters.
Will China allow the yuan to strengthen?
This is likely to be one of the central economic questions over the coming months.
China's central bank, the People's Bank of China, manages the yuan through a daily reference rate and a trading band rather than leaving its domestic currency entirely to unrestricted market forces.
On 8 October, the central bank publicly rejected allegations that China pursues competitive currency depreciation. It argued that global economic imbalances cannot be resolved simply by changing exchange rates.
There are reasons Beijing may be reluctant to allow a rapid appreciation. Export industries support employment, regional economies and investment. A stronger yuan would make Chinese products more expensive for foreign buyers and reduce the value of overseas earnings when converted back into the domestic currency.
But allowing the currency to strengthen could also benefit China. Imports would become cheaper, households would gain purchasing power over foreign goods, and the country could make progress towards an economy driven more by domestic consumption rather than dependence on exports.
A stronger currency would not, by itself, solve China's domestic economic problems. Weak consumer confidence, difficulties in the property sector and excess capacity in some industries would still require attention.
The immediate signs are mixed. Reuters reported on 16 October that the yuan had strengthened to its highest level against the US dollar since January 2023, supported by the central bank's guidance and continued export performance. That movement suggests that a stronger currency is possible, but it does not establish that Beijing has agreed to a major revaluation in response to foreign pressure.
What might happen in the coming months?
Three developments deserve attention.
First, diplomatic pressure is likely to continue. European governments will seek better access to China's domestic market and a more balanced trading relationship. The United States may also use trade negotiations and scrutiny of currency policy to press its case.
Second, trade restrictions could spread if governments decide that existing arrangements are failing. Targeted tariffs, anti-subsidy investigations and measures addressing particular sectors are more immediately plausible than a comprehensive international agreement on the yuan. Retaliation remains a risk.
Third, China could seek to reduce the underlying imbalance by encouraging domestic consumption and allowing market forces a greater role in determining the currency's value. That would be a more durable solution than relying on tariffs alone, but it would require changes to China's economic model rather than a single announcement from its central bank.
There is no guarantee that these developments will produce a decisive settlement within the next few months. Currency valuations are disputed, governments have different priorities, and China's authorities retain considerable control over how quickly the yuan moves.
Why tariffs alone may not solve the problem
A tariff can make imported Chinese goods more expensive, but it does not necessarily correct the causes of a trade imbalance. It can also divert exports into other markets, encourage production to move through third countries or raise costs for businesses that rely on Chinese components.
Nor would a stronger yuan automatically eliminate China's competitive advantage. Manufacturers could respond by improving productivity, accepting lower profit margins or moving production elsewhere. Some Chinese products would remain cheaper because of the efficiency and scale of their production.
A lasting adjustment would require action on both sides. China would need to encourage stronger domestic demand and address the structural factors behind its export surplus. Trading partners would need to improve productivity, invest in skills and technology, and ensure that their own industries can compete.
International financial cooperation matters because persistent imbalances can affect currencies, investment flows and financial stability well beyond the countries directly involved.
A difficult balancing act
The argument over China's currency is not simply a dispute about exchange rates. It is part of a larger struggle over manufacturing, employment, industrial policy and the future shape of global trade.
British consumers may benefit from cheaper imports, but those savings need to be weighed against the risk of losing domestic productive capacity. Businesses need affordable supplies, yet they also need a competitive environment in which investment and innovation can be rewarded.
Over the coming months, the key question will be whether international pressure produces a gradual adjustment in China's currency and economic policies, or whether governments increasingly turn to trade barriers to defend their industries.
A stronger yuan could help reduce some of the pressure, but it cannot solve every imbalance. Without changes to domestic demand, industrial policy and the way major economies save, spend and invest, the dispute is likely to continue.
The danger is that countries increasingly try to correct one another's economic policies through tariffs and retaliation. The opportunity is to use the current pressure to negotiate a fairer and more sustainable trading system, rather than allowing a dispute over currency values to become another prolonged trade war.
Further Reading
Geneva 29 Changing Structure and Challenges of the International Financial System
China's yuan poised to strengthen for a third week in a row on strong exports Subscription required