Record trade surpluses topping $1 trillion have helped drive up the yuan's exchange rate thanks to exporters' currency flows. However, valuation models based on purchasing power and terms of trade suggest it remains cheap.
German Chancellor Freidrich Merz, under pressure from German industry to take a tough stance on Chinese competition, has criticized Beijing for keeping its currency undervalued.
"The renminbi is indeed undervalued," said Chaoping Zhu, global market strategist at J.P. Morgan Asset Management in Shanghai.
"However, against the backdrop of this undervaluation from the perspective of stabilising domestic growth and employment ... it won't be completely liberalised to follow factors such as the trade surplus," in the short term, he said.
"Even if there is room for appreciation between now and the end of the year, it won't be significant," he said, especially since low interest rates have driven capital outflows.
The International Monetary Fund estimated in February that the yuan may be undervalued by as much as 20%, though China has disputed its methodology.
A steady currency helps exporters by preserving the value of their foreign income in yuan terms.
Governor Pan Gongsheng said in March that China had "neither the need nor the intention to gain a competitive edge in trade through currency devaluation," while reiterating that the market plays a decisive role in determining the yuan's value.
'Balanced yuan'
China manages its currency using its daily trading band setting along with so called "window guidance" or quiet messaging to market players to try and shape the way the yuan trades.
The PBOC has been setting its trading-band midpoint at levels weaker than market projections since November 2025 and by increasingly wide margins this month, as the midpoint has kept steady even as a weakening dollar suggests the yuan should rise.
HSBC analysts, who see the yuan at Monday's level of 6.72 at the year's end, said the flatlining fix is a sign that "authorities are contented with a 'balanced' yuan."
Major state-owned banks have also emerged repeatedly in the onshore market to buy dollars, people familiar with the matter said, reinforcing expectations policymakers seek to temper the pace of the yuan's rise, and driving a downturn in volume.
Average daily turnover in the onshore spot market has also fallen to $31.2 billion so far this month, from $42.2 billion in July and $39.9 billion a year earlier.
The FX conversion ratio - a gauge that measures households and corporates' willingness to sell dollars for yuan - dropped to the lowest level in nearly 1-1/2 years in July.
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