Market News

(Bloomberg) -- China's yuan is undervalued in real terms because of the country's flagging domestic economy, and steps to revive demand have fallen far short of what's needed, according to a senior International Monetary Fund official.

The currency's weakness "reflects the symptom" of underlying domestic imbalances that need to be fixed, Krishna Srinivasan, the organization's Asia-Pacific department chief, said in an interview in Bangkok, where the fund is hosting an annual meeting. The IMF's latest assessment in 2026 indicated the yuan's undervaluation in the range of 17.3% to 25.3%, with a midpoint of 21.3%.

Beijing has taken measures to boost demand, including a package announced last month that was labeled a "mini-stimulus." But that's not sufficient, Srinivasan said. "They need to be a lot more ambitious to address the imbalances."

He said the yuan's real effective exchange rate — a way of measuring a currency against a basket of its peers after adjusting for inflation — has depreciated because of China's very low inflation rate. "That automatically provides a competitiveness boost," he said. "That's been the reason why the trade surplus has increased over the years."

China's booming exports and the value of its currency have become a focal point of global debate. The country posted trade data Wednesday that showed it's headed for a record surplus this year in excess of the $1.2 trillion recorded in 2025.

Leaders including German Chancellor Friedrich Merz have piled pressure on Beijing to allow its currency to strengthen in order to curb the flow of Chinese goods into their markets, which has been hurting local producers and wiping out jobs. But China's reliance on those overseas shipments for growth has continued to increase, as a real estate slump and weak job creation weigh on domestic demand.

The exchange-rate question has been especially contentious, because of disagreements about whether the yuan's valuation is a cause of the imbalances or a consequence of them.

China's central bank weighed into this debate last week with a rare and lengthy formal document that defended its management of the currency. It cited the IMF research on the yuan's undervalued real rate, but argued that this shouldn't be read as a judgment on the nominal rate, or as justification for calls to engineer a yuan appreciation against specific currencies.

The bank said the IMF's policy recommendation for China is to rebalance its economy by expanding domestic demand, not to push for yuan appreciation.

Srinivasan said the Chinese government has left economic imbalances unaddressed for too long, contributing to the yuan's real depreciation and prolonging the resolution of other problems such as local government debt risks.