MNI INTERVIEW2: China’s Yuan Needs Greater Flexibility – Huang

China should allow the yuan to trade with greater flexibility, giving market forces a larger role, as Beijing continues its push to boost international use of its currency, said Huang Yiping, a member of the People’s Bank of China’s Monetary Policy Committee. 

Foreign-exchange policy needs to become more flexible, and if market pressure for yuan appreciation intensifies, regulators should allow market forces to play a greater role, Huang argued. As foreign-exchange reforms have progressed over recent years, particularly alongside the internationalisation of the yuan, the importance of anchoring the currency to the U.S. dollar has diminished, he added.

In 2025, China’s real effective exchange rate fell sharply while the trade surplus reached a record high. (See MNI: Yuan Strength To Break 7.0 In Early 2026 - Advisors)

However, Huang, who is also dean of Peking University’s National School of Development, pushed back on claims based solely on a widening trade surplus to show that the yuan is undervalued, noting that China will not rely on currency devaluation to boost export competitiveness. (See MNI INTERVIEW: Yuan Rally Further Saps Inflation - Guan Tao)

Given persistent capital-outflow pressures in capital account, assessing the yuan as undervalued from a supply-and-demand perspective is difficult, he said.

But Huang warned that the country’s sizeable production capacity risks increasing reliance on exports if domestic demand remains weak. Without stronger domestic demand, the export of excess capacity could intensify trade frictions and create new external pressures, he said.

As China shifts toward innovation-driven growth, industrial policy should avoid creating new overcapacity, Huang said. Local governments’ venture-capital funds have supported key industries when private and foreign investment appetite has been weak, but greater transparency and market-based discipline are needed to prevent resource misallocation and “involutionary” competition.

LOCAL GOVERNMENT FOCUS

China has set up an inter-ministerial leading group to tackle irregular and illegal industrial subsidies by local governments, Huang said, warning that many subsidies fail to raise technological levels or efficiency and instead expand capacity using existing technologies, exacerbating overcapacity and competition.

Reforms to the division of responsibilities and spending obligations between central and local governments have also become urgent, Huang said, noting that local fiscal stress has partly offset the effects of accommodative central government policies.

The direction of reform should be to reduce the administrative responsibilities of local governments while expanding their fiscal authority, he said. Economic development and industrial promotion could be left more to the market, while local tax bases could be strengthened by increasing local revenue shares from sources such as digital taxes, consumption taxes and value-added taxes, he suggested.