MNI INTERVIEW: Yuan Depreciation Harming China-EU Trade

China’s EU exports have gained a significant lift from the yuan’s roughly 10% depreciation against the euro this year, widening its trade surplus, a senior Beijing-based European business leader warned, adding that member firms are also struggling with renewed shortages of rare earths and other critical raw materials, challenges both sides should weigh in future trade talks.

Adam Dunnett, secretary general of the European Union Chamber of Commerce in China, argued the weaker currency runs counter to fundamentals, pointing to China’s 5% growth last year versus near-zero in the EU, alongside its trade surpluses of about USD1 trillion. Thirty-five consecutive months of negative PPI have only reinforced the export push, he said, citing official data showing Chinese exports to the EU rose 7.5% in the year to August while imports fell 4.8%. (See: MNI: China's Transshipment Strategy Unsustainable)

The yuan recently touched a low of 8.4 to the euro, compared with 7.5 in January 2025. After trade talks in Spain with Beijing last week, U.S. Treasury Secretary Scott Bessent labelled the yuan’s trend a more significant problem for Europe than the U.S., given its rise against the dollar but steep decline versus the euro. (See: MNI EM PBOC WATCH: Data-Dependent, No Hints Of Future Stimulus)

“We are at risk of becoming a one-way street in terms of the trading relationship,” Dunnett cautioned. While some Chamber members benefit from producing in China for export to Europe, he said most are focused on the domestic market, leaving the overall impact negative.

To address what EU President Ursula von der Leyen described at a July summit in Beijing as an “unsustainable” situation, the Chamber is urging Beijing to adopt its recommendations for China’s upcoming 15th Five-Year Plan. These include tackling excessive competition, boosting domestic demand and ensuring greater transparency.

“The current situation is also unsustainable for China domestically, with the economy slowing and many local firms struggling to turn a profit,” Dunnett warned. Failure to reform would not trigger a mass exodus of foreign businesses but could gradually erode vitality as companies divest or scale back investment, he said. “Even with lower profitability, the market size is still attractive for now.”

RARE EARTHS 

Dunnett also highlighted renewed shortages of rare earths and critical raw materials, which resurfaced after a brief July rebound during von der Leyen’s Beijing visit. While supply improved during the summit, disruptions spiked again in September, leaving companies without clear explanations.

"In August alone, production stoppages occurred due to at least seven unapproved applications that we are aware of and this could surge up to 46 in September if currently pending applications are not processed,” Dunnett said, adding the Chamber is still not getting a clear explanation as to the cause.

While the Chamber liaises with Beijing almost daily and access to outward-facing officials has been relatively open, Dunnett said it would prefer direct engagement with technocratic regulators inside ministries who drive decisions.

Both Chinese and European officials, he observed, appear more focused on managing their respective relationships with Washington. Yet many European companies in China are entangled in U.S. supply chains – buying from and selling to American partners – and therefore feel the spillover effects of China-U.S. trade negotiations, he added.