Renminbi Revaluation: China's Path to Tech & Monetary Power

The global economic landscape is constantly evolving, with currency valuations playing a pivotal role in national strategies. Amidst ongoing discussions about trade imbalances and economic power shifts, prominent economists, both in the West and within China, are increasingly advocating for a strategic revaluation of the Chinese Renminbi (RMB). This article explores the compelling arguments put forth by Lian Ping, director of the China Chief Economists Forum, who proposes a deliberate appreciation of the RMB during China's 15th Five Year Plan (2026-2030) as a crucial step towards achieving global technological and monetary dominance.

Is the Renminbi Truly Undervalued?

The debate surrounding the Renminbi's valuation is not new. In 2005, China unpegged the RMB from the US dollar, allowing for greater flexibility. However, a series of devaluations in 2015, which collectively reduced the RMB's value by 3%, marked the beginning of what Lian Ping describes as a decade of steady depreciation, reaching a cumulative 15% by mid-2025. This trend, Lian argues, contradicts the fundamental economic shifts observed between China and the US over the same period.

Lian Ping highlights China's significantly higher economic growth rates compared to the US, coupled with multiple consecutive years of substantial current account surpluses, stable balance of payments fundamentals, and ample foreign reserves. Conversely, the US has seen its current account deficit expand, its fiscal deficit continuously grow, and government debt reach unprecedented levels. This stark contrast in economic health, Lian asserts, indicates that the Renminbi's depreciation has not been a reflection of underlying fundamentals but rather an "excessive reaction to short-term market sentiment and one-sided expectations compounded by external shocks."

Inflationary Divergence and Purchasing Power

Further evidence for RMB undervaluation comes from the diverging inflationary trends between the two nations post-COVID-19. While many OECD countries, including the US, grappled with inflationary spikes and responded with interest rate hikes, China has faced deflationary pressures, primarily attributed to a shortfall in domestic demand. From a purchasing power parity perspective, currency exchange rates should ideally offset differences in inflation rates. Given the considerable rise in US goods prices compared to the relative stability in China, Lian concludes that the Renminbi possesses inherent appreciation pressure against the US dollar, estimating an undervaluation of 6-15% between 2022 and 2024.

Renminbi Appreciation: Accruing Future Pressure

Lian Ping anticipates that the pressure for the Renminbi to appreciate will only intensify. This expectation is grounded in several factors, including China's projected economic growth surpassing that of the US, continued expansion of Chinese household wealth, and persistent divergence in inflation rates. A crucial driver will be China's ambitious pursuit of tech-driven industrial dominance. By increasing demand for the Chinese currency globally and bolstering the nation's current account surplus through high-end manufacturing exports, China's industrial advancement will provide strong market-driven support for RMB appreciation.

Moreover, Lian points to structural weaknesses in the US economy as contributing to downward pressure on the dollar and undermining its hegemonic status. Concerns range from the erosion of the Federal Reserve's independence under previous administrations to the "weaponization of the dollar" through financial sanctions, which has led to questions about its reliability as a medium of international settlement. The continuous expansion of US federal government debt, surpassing US$38 trillion, further weakens the dollar's long-term forecast. These factors collectively fuel a trend of "global de-dollarization" and the emergence of a multipolar international monetary system, where currencies like the Renminbi could gain greater prominence and support.

Strategic Benefits for China from a Stronger Renminbi

Lian Ping outlines four critical areas where Renminbi appreciation can yield substantial benefits for the Chinese economy, aligning with Beijing's long-term strategic goals.

1. Achieving Developed Economy Status by 2035

China aims to become a "mid-tier developed nation" by 2035, requiring its per-capita GDP to reach at least US$20,000. With a per-capita GDP of US$13,445 in 2024, this necessitates an average annual growth of 4-5% over the next decade. Renminbi appreciation can contribute to this goal by enhancing the "wealth effects" for Chinese households. A stronger RMB would significantly increase their ability to invest in global markets and allocate assets internationally, leading to improved asset-based income and higher living standards, thereby contributing to the desired increase in national affluence.

2. Transforming China into the World's Leading Consumer Market

Despite its large population, China's household consumption as a share of GDP still lags developed economies by 10-30 percentage points, with services consumption being particularly low. Post-pandemic, domestic consumption growth has further weakened. While China became the world's second-largest consumer market in 2021, its consumption growth has slowed relative to the US. Lian argues that a moderate RMB appreciation can be a key catalyst for unleashing the immense consumption potential of China's 1.4 billion people, boosting purchasing power, optimizing consumption patterns, and eventually surpassing the US as the world's largest consumer market. This would also facilitate China's rise as the largest import market, helping to mitigate trade imbalances and ease international economic relations.

3. Accelerating China's Scientific and Technological Innovation

Renminbi appreciation is seen as a "strategic lever" for accelerating China's scientific and technological innovation. It would significantly reduce the cost of importing high-tech products and critical components—such as semiconductors, jet engines, and advanced research reagents—on which China still heavily relies. Given that high-tech imports constituted approximately 30% of China's total imports in 2024, this cost reduction would be substantial. Furthermore, a stronger Renminbi would increase the relative value of domestic financial assets, making the Chinese market more attractive for foreign capital flows, thus supporting the growth and innovation of domestic tech enterprises.

4. Driving the Internationalization of the Renminbi

A primary strategic objective for Beijing under the 15th Five Year Plan is to advance Renminbi internationalization, increase capital account openness, and establish a sovereign cross-border payments system. For the Renminbi to credibly challenge the US dollar and the Euro, it must function as a robust store of value—a critical function alongside being a medium of exchange and a unit of account. Lian emphasizes that "any money which suffers from long-term weakness cannot possibly become an international currency that is widely accepted by the global community." Therefore, moderate appreciation is deemed essential to bolster the Renminbi's credibility and drive its wider acceptance on the global stage.