The Bank for International Settlements has just published a paper which it says shows, as most will have probably thought, that “China’s trade balance is sensitive to fluctuations in the real effective exchange rate of the renminbi”.
The report, China‘s exchange rate policy and Asian trade, adds that “exchange rate policy alone will probably not be able to address the imbalance. The potential reduction in the trade surplus resulting from an increase in the renminbi exchange rate is limited mainly because Chinese imports do not react as expected to a renminbi appreciation – they tend to fall rather than increase.
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