China maintains strong export competitiveness despite stronger yuan

China is maintaining its export competitiveness through central bank interventions and a shift in its export portfolio, despite concerns that an appreciating yuan could weaken the country’s global trade leadership.

Chinese exports rose 35.2% year-on-year in October, reaching $412.3 billion, while imports surged 41.6% to $307 billion, driven by rising oil prices due to the Middle East conflict. These results gave policymakers room to pursue moderate stimulus aimed at achieving annual growth of 4.5%-5%.

The rise in imports narrowed the country’s monthly trade surplus from $133.5 billion in September to $105.3 billion in October. The 10-month surplus surpassed $1.04 trillion despite the yuan strengthening against the dollar from 6.98 at the start of the year to 6.64 by Nov. 2.

Sadi Kaymaz, an Asian markets analyst, told Anadolu that the Chinese yuan’s roughly 5% appreciation against the US dollar, reaching a four-year high, has yet to significantly damage competitiveness due to the People’s Bank of China’s (PBoC) interventions.

The bank had decided to raise the reserve requirement ratio on foreign exchange deposits, fueling expectations that it could halt the yuan’s appreciation.

Kaymaz said the currency’s appreciation should reduce competitiveness, but the current situation does not pose a disadvantage as Chinese exports are being driven by artificial intelligence (AI) hardware.

“Chinese chip exports doubled in value and the sensitivity of exports to exchange rate fluctuations remained limited,” he said.

He noted that the yuan’s appreciation made energy, raw materials and intermediate goods cheaper, offsetting the impact of the stronger currency, while slower price increases in China compared with its trading partners also eased the impact.

“Low-margin sectors like textiles, toys, and furniture are sensitive to exchange rates and they saw a slight slowdown, but this time the appreciating yuan is not affecting export competitiveness as significantly as expected and the PBoC’s efforts to curb its appreciation played a role in this, allowing exporters to absorb the exchange rate gains over time,” he added.