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| Undervaluation of the Chinese yuan supports the eurozone trade deficit |
| Kolín, 24.07.2025 |
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| European companies are also facing increasing pressure due to China's efforts to keep its yuan currency weak. The German Economic Institute (Institut der deutschen Wirtschaft IW) said this in a report on Wednesday ahead of the upcoming summit of European Union (EU) and Chinese leaders. TASR reports this based on a Reuters report.
The yuan's exchange rate against the euro has remained stable in recent years despite significant changes in cost relations between Europe and China. This indicates probable currency manipulation by the Chinese central bank, said Jürgen Matthes, author of the IW study.
"Artificially low costs in China, caused by the undervaluation of the yuan, are very attractive," said Matthes. The extremely low prices mean that more European companies are sourcing semi-finished products from China, which contributes to deindustrialization on the continent and a deepening of the Union's trade deficit, he said, calling on Brussels to act. Those companies that do not source their semi-finished products from China would lose market share to competitors that “take full advantage of China’s price advantages.”
EU leaders will travel to Beijing on Thursday (July 24) for a summit with China as the two sides seek to resolve trade disputes at a time of global uncertainty. China, in response to accusations of currency manipulation, has previously said it is committed to a managed floating exchange rate regime based on market supply and demand.
European companies are already under pressure from a surge in Chinese exports diverted from the US and from the appreciation of the euro against the dollar due to US President Donald Trump’s trade policies.
Producer prices in Germany and the eurozone have risen sharply since 2020 due to supply chain disruptions and the energy crisis, while prices in China have barely risen and the yuan has barely budged. On the other hand, the euro appreciated by more than 40% against the Chinese currency between the beginning of 2020 and the spring of 2025. This led to a widening of the eurozone’s trade deficit with China, the study shows.
Normally, higher imports into the eurozone would strengthen the yuan because it would increase demand for the Chinese currency, but that has not happened, Matthes said. Trump has already labeled China a currency manipulator during his first term. The US last month warned about China’s exchange rate practices.
China responded by saying it adheres to “multilateralism and respects multilateral consensus,” is committed to maintaining a stable yuan exchange rate, and will not “engage in competitive currency devaluation.” But Matthes called the Chinese central bank’s behavior “very non-transparent.”
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