JPM CNY valuation

Jahangir Aziz ( Global Economic Research JPMORGAN J.P. Morgan Securities LLC 11 August 2026

CNY valuation: where angels and policy changes that lift household consumption in China and reduce fiscal deficits in the United States, allowing Chi- fear to tread na’s excess savings and America’s savings shortfall to narrow on a sustained basis. • The current CNY debate is a 20 year rerun trapped in a false binary: “yuan as weapon” vs. “yuan as victim” As we have seen in many similar episodes (e.g., the impact of the 1985 Plaza Accord), neither the diagnosis nor the cure is • Both camps are troubled by widening “global imbal- simple or tidy; they are almost always messy. Casting the ances,” and agree that CNY is undervalued 20–30% argument as a false choice between two caricatures—CNY as • They disagree on the why: China’s FX management or weapon and CNY as victim—distorts the debate and over- policies that suppress consumption states both sides’ claims in self‑righteous overreach. • We find the debate moot: a misalignment of this size should be showing up as inflation in China and disin- What is “global imbalance?” flation elsewhere, contrary to current price dynamics While there have been rumblings around China's rising trade • Our view is also mundane: Fiscal will help growth, but surplus and associated concerns over its managed exchange not lower export dependency; CAS and appreciation rate, the current form of the debate centers on the IMF’s 2026 pressures will stay high External Sector Report (ESR) that reports that global external • China will smooth the pace of appreciation, but not imbalances widened in 2025, bucking the post-GFC trend. fight the direction The IMF describes imbalances as having “widened” in two Debate around CNY valuation has flared up again in recent related but distinct ways: first, as the increase in the aggregate months. This has now become a decadal ritual, yet its framing global current account imbalance; and second, as the increase has barely moved on from the mid‑2000s. Back in 2004–05, in “excess” balances, meaning the gap between countries’ the renminbi was effectively pegged to the dollar, and the (mainly China and the US) actual current account positions seemingly relentless rise in China’s trade and current account and the IMF’s EBA (external balance assessment) norms. surpluses became the defining exhibit of global anxiety over widening “global imbalances.” Both criteria are conceptually and empirically weak, and they are not necessarily harbingers of disruptive adjustments in The dominant diagnosis was disarmingly straightforward: the global prices, trade, or capital flows. cause was a severely undervalued currency, and the adjust- ment required a stronger CNY. Estimates of the undervalua- Figure 1: Global current account balances tion varied widely, from zero to 50%. On the other side of the % of global GDP China debate were those that argued that the large and rising current US 6 account surplus was a symptom of domestic distortions Global across, input, capital, and goods markets. While greater CNY 4 flexibility was deemed to be integral to the solution, by itself it would do little to correct China's domestic or global imbal- 2 ances without accompanying policy changes and reforms. 0 If today’s discussion feels like déjà vu, that is because the arguments are much the same as they were twenty years ago. - While the common ground is a shared concern over growing global imbalances, on one side are those who see the renmin- Source:IMF

bi as a rigged price, undervalued by as much as 30%, that dis- torts global trade and must be forced higher by pressure. Trade with Mars Figure 1 reproduces the data from the IMF report on global On the other side are those who argue that global imbalanc- current account balances. IMF membership covers almost all es—China’s current account surplus and the U.S. deficit— the countries of the world, and consequently the aggregate primarily reflect each country’s domestically driven saving– current account balance should be zero.The fact that the glob- investment gap, itself shaped by policy choices, with the al current account balance does not add up to zero is a…