In the final trading days of 2025, the onshore exchange rate of the renminbi against the U.S. dollar (CNY) broke through the 7.0 threshold. This was the same level first crossed in the opposite direction in August 2019. Now, unexpectedly, the exchange rate has returned to that point. After that, the renminbi continued to strengthen against the dollar. By mid-February, around the Chinese New Year, the offshore renminbi exchange rate (CNH) had already moved past the 6.90 mark.
This raises an obvious question: why did the renminbi show an appreciation trend during this period that ran counter to widespread market expectations? In China’s current fragile economic environment, is a stronger renminbi actually beneficial or harmful for ordinary citizens?
Before discussing this issue, one basic concept must be clarified: the renminbi is the only major currency in the world that operates under two exchange-rate systems—onshore and offshore. Because the Chinese Communist Party maintains a tightly controlled foreign-exchange system, the renminbi has never truly been internationalized, and Beijing has little intention of allowing it to be fully market-determined.
Instead, depending on domestic policy priorities, economic conditions, or geopolitical considerations, authorities intervene—directly or indirectly—to influence the renminbi’s exchange rate in both markets.
The goal is to maintain the appearance that the exchange rate remains within a “reasonable range” recognized by the market, thereby projecting stability in financial and monetary policy. For a currency that is so heavily influenced by government intervention, judging whether its exchange rate is truly “reasonable” by global market standards inevitably has serious limitations.
For the best of our weekly content！
You are now signed up for our newsletter
Check your email to complete sign up
Any analysis of movements in the renminbi can therefore provide only relative interpretations rather than conclusions based purely on market logic, because political factors with Chinese characteristics fundamentally distort the currency’s real value.
Since November last year, a number of domestic financial commentators have repeatedly claimed that the renminbi is “seriously undervalued,” arguing that the exchange rate against the U.S. dollar should be around 1:5 or even 1:3, and that the currency should therefore be allowed to appreciate.
‘Why China Needs a Stronger Yuan’
At the end of November 2025, the Financial Times published a column titled “Why China Needs a Stronger Yuan,” written by Shan Weijian, founder of the Hong Kong-based private equity firm PAG. Shan argued that the renminbi’s long-term undervaluation effectively sacrifices Chinese consumers’ purchasing power in order to subsidize exports, thereby distorting the country’s economic structure.
He further suggested that if the renminbi appreciated by 50 percent within five years, it could help shift China’s economy from an export-driven model to a consumption-driven one while attracting more foreign investment.
Similarly, in early December 2025, an internal report by Goldman Sachs stated that from a medium-to-long-term economic perspective the renminbi was undervalued by about 30 percent, and that a fair exchange rate should be roughly 1:5 against the U.S. dollar.
Around the same time, The New York Times published an article titled “Export Boom and Weak Consumption: A Weak Yuan Reveals China’s Economic Risks.” The article compared hotel prices as an illustration: a night at the Waldorf Astoria in Manhattan costs about $2,000, while a night at the Waldorf Astoria near Wangfujing in Beijing costs roughly 2,400 yuan. At an exchange rate of 7:1, that equals about $340.
Based on such comparisons, the article also concluded that the renminbi was significantly undervalued.
Both Shan and The New York Times cited the so-called “Big Mac Index” as part of their reasoning. Created by The Economist in 1986, the Big Mac Index is an informal measure of purchasing power parity that compares the price of a McDonald’s Big Mac across countries. Because the burger’s ingredients and production process are standardized, the index attempts to estimate whether currencies are overvalued or undervalued.
However, the index does not account for differences in rent, taxation, labor costs, and other economic factors among countries. For that reason it is often viewed as a humorous or intuitive comparison rather than a rigorous economic indicator. Nevertheless, both articles used it to support their conclusions.
The ‘Big Mac’ index
For example, a Big Mac costs about $5.80 in the United States but only about 25.5 yuan in mainland China. At an exchange rate of 7:1, that equals roughly $3.64. Based on U.S. pricing, the same burger in China would cost close to 42 yuan. By that logic, the renminbi appears to be undervalued by roughly 40 percent.
In reality, the Big Mac Index reflects a perspective from an ivory tower and does not capture China’s actual social conditions. If McDonald’s tried to sell a Big Mac in China for 42 yuan, it might struggle to remain competitive.
Those financial elites and pro-government media outlets often point out that McDonald’s is cheap in China. Yet they overlook another reality: even at current prices, the company has introduced what is widely known as the “poor man’s combo”—a discounted meal costing only 13.9 yuan that includes a double cheeseburger or grilled chicken burger with a small side such as nuggets, fries, or a pie.
Online discussions even mention some young people with limited incomes eating this budget meal for an entire month until they grew tired of it. Under such circumstances, one might ask: for people who rely on this kind of meal for weeks at a time, what does a stronger renminbi have to do with their purchasing power?
Is the renminbi’s real purchasing power truly as strong as these articles suggest? Anyone with basic economic knowledge understands that allowing the renminbi to appreciate under current conditions would not benefit China’s economy. For most ordinary citizens, it could actually do the opposite.
First, consider how exchange-rate appreciation affects everyday life. Western countries often prefer a stronger renminbi because it would reduce the competitiveness of Chinese exports. Yet domestic commentators who claim that appreciation will “increase people’s purchasing power” overlook a fundamental issue.
Their logic is straightforward: if the renminbi appreciates, the currency becomes more valuable, making overseas travel and imported goods cheaper. A $100 imported product that previously cost 700 yuan at a 7:1 exchange rate would cost only 600 yuan at 6:1, or even 500 yuan at 5:1.
In theory, that reasoning sounds persuasive. But where does the purchasing power of ordinary Chinese citizens actually matter—New York, San Francisco, London, or Paris?
In reality, their purchasing power is reflected in neighborhood vegetable markets, roadside breakfast stalls, small convenience stores, fruit shops, and local clothing stores.
Exchange rates mean little for ordinary citizens
Whether the exchange rate is 7:1, 6:1, or even 5:1 means little for hundreds of millions of people whose monthly income is only 1,000 or 2,000 yuan. What concerns them most are the prices of eggs, rice, vegetables, and pork.
Shan Weijian argued that Chinese household savings reached $23 trillion in 2024 and that a stronger renminbi would encourage consumers to spend more. But the distribution of that savings tells a very different story.
At China Merchants Bank there is a customer tier called “Golden Sunflower,” generally referring to clients holding at least 400,000 yuan in cash or financial assets. This group represents only about 2 percent of the bank’s customers—yet it holds 81.85 percent of the bank’s retail assets.
This example reveals how China’s $23 trillion in savings is distributed, and how few ordinary citizens actually possess even $10,000 in savings.
The people who might spend more after a currency appreciation are therefore easy to identify. And where would they spend that money—inside China or overseas? The answer is equally clear.
Consider a construction worker carrying bricks on a building site, a sanitation worker cleaning city streets, or a young factory worker tightening screws on an assembly line. When they eat inexpensive lunches at roadside stalls while scrolling through news on their phones, would a headline about the renminbi strengthening suddenly make them shout: “The exchange rate is six to one now! I’m rich! Bring me another chicken leg, two fried eggs, and a Budweiser”?
Would an ordinary working family say, “Our refrigerator is more than ten years old. Now that the renminbi is stronger, perhaps we should buy a new imported brand”?
These people earn and spend in renminbi. They rarely exchange foreign currency. Whether the renminbi appreciates has little to do with their daily consumption or confidence.
Viewed from a macroeconomic perspective
Some might argue that the issue should be viewed from a macroeconomic perspective: if the overall economy improves, people’s lives will naturally improve. Yet the sector most directly linked to the renminbi’s exchange rate is foreign trade.
Since the collapse of the real-estate boom, exports have become the most important pillar of China’s economic strategy under what Xi Jinping calls “new productive forces.” When production capacity expands while domestic demand weakens, excess capacity must be absorbed through exports.
China’s officially reported trade surplus of $1.19 trillion in 2025 reflects this reality.
However, a stronger renminbi makes Chinese exports more expensive abroad, inevitably weakening their competitiveness. Some observers note that exports continued to grow even as the renminbi appreciated in the second half of last year, suggesting that demand for Chinese goods remains strong.
But that interpretation overlooks important details. Although export volumes increased in 2025, many products were sold at significantly lower prices.
For example, China’s steel exports surged to nearly one million tons per month in 2025, yet prices were roughly equivalent to the $800 per ton level seen in 2020—half the $1,600 per ton recorded in 2022, when monthly exports were only about 600,000 tons.
Moreover, the $1.19 trillion trade surplus represents the difference between exports and imports and does not reflect production costs. A decline in imports can also inflate the surplus figure.
Another factor is that the U.S. dollar depreciated against many global currencies in 2025. Although the renminbi strengthened against the dollar, it actually weakened against several other major currencies—falling 8.5 percent against the euro, 6.2 percent against the British pound, 9.9 percent against the Mexican peso, 5.2 percent against the Malaysian ringgit, and 3.8 percent against the Thai baht.
According to the CFETS renminbi index, the currency actually depreciated by about 4.1 percent overall in 2025.
Thus, the primary driver behind China’s record export performance was low prices. Domestic competition has become extremely intense, and many companies struggle to sell products at home or collect payments from customers. Export markets often provide faster cash flow, even if goods must be sold at a loss.
Slim profit margins
Today many Chinese companies operate with net profit margins of only 3 to 5 percent. Even a modest appreciation of the renminbi—from 7 to 6.8—makes it harder to maintain cash flow through price reductions.
As profits shrink further, companies may respond by cutting wages or laying off workers, which weakens consumer purchasing power.
The international purchasing power created by a stronger renminbi remains largely theoretical for most Chinese citizens. Many cannot travel abroad and therefore cannot participate in global consumption markets. The primary beneficiaries would likely be wealthy individuals and political elites.
If manufacturing firms begin large-scale cost cutting or shut down entirely, the consequences for ordinary people would be immediate. When factories close and unemployment rises, cheaper imported goods will not necessarily stimulate consumption.
Even workers whose jobs are unrelated to exports may feel less secure as unemployment spreads, prompting households to increase precautionary savings. Under such conditions, stimulating consumption becomes extremely difficult.
Supporters of renminbi appreciation also argue that it could “force industrial upgrading.” Their reasoning is that higher exchange rates would pressure companies to improve technology and efficiency, eventually raising wages.
In theory this argument appears plausible. If an export product sells for $100, it yields 700 yuan at a 7:1 exchange rate. If the renminbi appreciates to 6.5:1, the same sale returns only 650 yuan. To maintain profit levels, the company would need to raise the export price to roughly $108—an increase of about 8 percent.
A fiercely competitive global market
In a fiercely competitive global market, that price increase could make the product difficult to sell. Companies then face two options: increase efficiency and cut costs, or upgrade technology to produce higher-value goods.
However, many Chinese exporters already operate on extremely thin margins and large volumes. Once the renminbi appreciates, profit margins shrink further and cash flow becomes unstable, leaving little room for costly industrial upgrades.
Businesses and individuals alike must first ensure survival before pursuing technological transformation.
In practice, a stronger renminbi could leave only large state-owned enterprises or well-capitalized industry leaders standing, while many small and medium-sized firms disappear. The contraction of the real economy could ultimately undermine the very foundation supporting the currency itself.
Finally, currency appreciation may not attract foreign investment as some advocates suggest. Instead, wealthy individuals and companies inside China might seize the opportunity to convert renminbi assets into U.S. dollar assets and move capital abroad.
Such capital outflows could further weaken the domestic economy, leaving ordinary citizens facing even greater economic pressure.
Under current conditions, a stronger renminbi is unlikely to rescue China’s economy. For ordinary citizens, it may even prove harmful.
Yet another question remains: why do so many Chinese people become excited whenever they hear news about the renminbi strengthening?
Due to space limitations, that question will be discussed in the next installment.