Michael Pettis

China: Can the RMB Be More Undervalued Today than It Was Last Year?

What drives the value of a currency is the balance of payments flows, so that China, with its massive trade surplus and very large capital account surplus should see its currency revalue, and would if the PBoC didn't counteract those flows by massive purchases of foreign assets. The only reason "strong" economies tend to see appreciating currencies (and they often don't) is that perceptions of strength often encourage investment inflows. In this case, China still has a massive balance of payments surplus, even if the economy is slowing (and by the way a slowing economy would still give it above average growth).