China’s currency manipulation

Most economists agree that China is a currency manipulator. In August 2019, the Chinese joined the likes of Japan, South Korea and Germany on the illustrious list of nations for who the US have designated currency manipulators. This came after the Chinese Yuan sank to a ten-year low to the US dollar after the former currency depreciated from an exchange rate of 6.25 to 7.25 CNY to 1 USD during 2019. This raises the question of how China achieves this, alongside the effects of Chinese currency devaluation on the global economy.


The Chinese Central Bank has successfully manipulated the Yuan through the purchase of foreign currencies. As China is an export-driven economy having had a large current account surplus for decades, the value of the Yuan naturally should trend upwards. This is due to the growing demand for the Yuan that comes with exports, as foreign nations demand the Yuan to purchase Chinese goods. However, the Chinese Central Bank (the People’s Bank of China) has purchased large amounts of foreign currencies to prevent the Yuan from rising, which simultaneously strengthens the value of other currencies. In 2013 alone, the People’s Bank of China spent the equivalent of $500 billion on purchasing foreign currencies. This has meant that the Chinese Yuan has depreciated relative to other currencies over the past decade, despite China having a large trade surplus with these same nations. In 2015, the People’s Bank of China facilitated a 2% fall in the Yuan relative to the US dollar through US dollar purchases, further strengthening Chinese exports. Therefore, China achieves currency manipulation through purchasing foreign currencies, thereby weakening the value of the Yuan, making exports more competitive.

Effect on the Chinese economy

As briefly aforementioned, currency manipulation by the People’s Bank of China is with the intention of decreasing the value of the Chinese Yuan relative to other nations. This has the effect of making exports more competitive, thereby encouraging the purchase of Chinese goods from abroad. However, increasing exports has the effect of increasing the value of a currency due to growing demand for said currency, thus explaining the need for Chinese currency manipulation to push the value of the Yuan down. As a result, China has a strong manufacturing base with the Industrial sector responsible for over 40% of China’s GDP. By comparison, industrial output only comprises 19% of US GDP, with the service sector comprising 80% of GDP. This makes China better placed to weather recessions and economic downturns as consumers first cut back on services in times of economic hardship. This was seen to be evident during the Global Recession of 2008, as Chinese GDP rose 5% compared to -4% in the US. In this way, China has benefitted greatly from the devaluation of the Yuan through currency manipulation as it led to their exports being more competitive as they are cheaper to buy with foreign currencies, thereby promoting economic growth.

Effects on the US economy

However, this currency manipulation has negatively impacted the industrial sector of other developed nations, especially the US. This is because as Chinese products become more competitive and attractive for foreign customers, this comes at the expense of American produced goods. As a result, there is lower demand for US products, leading to declining manufacturing jobs as factories are forced to close in light of insufficient demand and revenue. This has been seen in the US, as the number of manufacturing jobs has declined sharply over the past decades. In 1979, the number of Americans working in manufacturing stood at just under 20 million; by 2009, this figure was at 11 million – nearly a 50% decrease. At the same time, the number of Chinese exports to the US skyrocketed. The US trade deficit with China grew from $10 billion in 1988 to $270 billion by 2008, highlighting the increasing competitiveness of Chinese goods that comes with a devalued currency. Therefore, it is evident that Chinese currency manipulation has come at the expense of the American manufacturing industry which has witnessed a sharp decline over the past decades. At the same time, Chinese exports to the US have grown drastically, due to the increasing competitiveness of Chinese goods that occurs with currency devaluation through manipulation.

Ultimately, China’s currency manipulation has proved very successful for their economy, to the detriment of the manufacturing sector of other nations. Through purchasing foreign currencies with the Yuan, the People’s Bank of China has increased the competitiveness of Chinese goods. As a result, the growing demand for Chinese exports that accompanies the devaluation of the Yuan has precipitated the sharp decline of the manufacturing industry in the US, as foreign nations look to purchase cheaper Chinese products. Time will tell if China will feel repercussions for their currency manipulation as it has contributed to their economic growth continuing to outpace that of the US, leading to a slowly shifting global power balance.