There’s been a lot of discussion of overcapacity in Chinese production, and the resulting pressures in the US and other markets. Here’s a picture of the Chinese real exchange rates.
Figure 1: China trade weighted CPI deflated real exchange rate (blue), and US-China bilateral CPI deflated real exchange rate (tan), in logs. Up denotes increase in value of Chinese currency. Chinese CPI adjusted by author using X-13. Source: BIS, FRB, BLS via FRED.
In principle, I’d prefer to use PPI deflated real rates, or even unit labor cost deflated (see this paper), but those are harder to come by. The Chinese trade-weighted value of the CNY is down 15% in log terms since its recent peak at 2022M03. In contrast, the decline in the bilateral real exchange rate is 20%. From 2021M02, it’s 25%. Interestingly, Imports of goods from China (as reported in the trade statistics) are not far different from 2022M03:
Figure 2: Change in imports from China relative to 2022M03 (blue bar), from non-China (tan bar), in bn.$/month. Imports from China are goods, Customs basis; total imports of goods and services, Balance of Payments basis. China goods imports seasonally adjusted by author using X-13. Source: Census, BEA via FRED.
That being said, it’s clear that a lot of Chinese goods are getting to the US via third countries (trans-shipped, or production shifted). Really, what we’d like to see more is value added imported from China; to my knowledge, up-to-date data of this sort is not readily available.Even then, the bilateral value added flow would not show the total pressure on tradables prices, since Chinese imports could be depressing traded prices globally, thereby increasing imports into the US.Is the Chinese currency undervalued? More on that later (older recap of approaches, see here). The latest Treasury report is from November. The BigMac index, using December data, indicates 26.3% undervaluation using the Penn Effect.More By This Author:Real Median Household Income For March
Business Cycle Indicators, Mid-April
US-China GDP Growth Since 1981
