EU Plans High-Level Talks with China on Yuan Valuation Amid Trade Tensions

European Union finance and banking officials plan visits to Beijing in the coming months to persuade China to stop restraining the yuan's value and help struggling European industry. The planned currency discussions follow European success in persuading China to accept a limit on hybrid car exports. Director general Maarten Verwey will lead top EU economy officials to a macroeconomic dialogue with counterparts from China in the week of November 23.

Multiple people familiar with the planning said representatives of the European Central Bank, Eurogroup and European Commission could visit around the turn of the year, although no date is final. ECB President Christine Lagarde will likely lead that delegation alongside EU economy chief Valdis Dombrovskis and Eurogroup President Kyriakos Pierrakakis. The three institutions manage euro zone monetary policy and coordinate economic policies, while the Eurogroup brings together EU members that use the euro. The revived format would hold its first formal meeting in more than a decade with People's Bank of China governor Pan Gongsheng and Finance Minister Lan Foan. Discussions began alongside global financial meetings in Bangkok earlier this month.

EU leaders say the yuan's perceived undervaluation makes China's goods cheaper for European buyers and contributes substantially to a second China-related trade shock affecting European industry. The yuan does not float freely, and trading partners have long suspected that China undervalues the currency to support exports, an important source of economic growth. The International Monetary Fund suggested this year that the yuan could be undervalued by up to 21%. Centre for European Reform researchers estimated undervaluation at closer to 30%. Chinese think tank CF40 also found considerable potential for yuan appreciation in the coming years, based on comparisons of prices in China and the United States. BusinessEurope, the Brussels-based corporate umbrella lobby, said last week that China suppresses appreciation that China's surplus would normally produce, artificially supporting export competitiveness alongside direct state assistance.

However, Beijing has rejected the criticism publicly and privately, citing official data showing that the yuan strengthened almost 10% against the euro in 2026. An official PBOC account of the October 16 meeting quoted Pan as saying exchange-rate adjustments cannot resolve global imbalances and exchange rates have no simple relationship with current accounts. Pan also cited an October 8 PBOC paper rejecting the argument that China manipulates the yuan to support exports and denying any need or intention to seek competitive advantages through devaluation. Natixis chief Asia-Pacific economist Alicia Garcia-Herrero said the yuan's 2026 gains had effectively disappeared in real terms because China's flat inflation and prolonged producer-price declines contrasted with rising prices elsewhere.

People familiar with the Bangkok discussions said Pan and Lan arrived very well prepared. Pan has recently met senior European figures, including the central bank governors of France and Sweden and Emmanuel Bonne, French President Emmanuel Macron's diplomatic adviser. European participants approached the currency issue cautiously to avoid appearing to confront China jointly with the United States. European officials discussed global imbalances by placing China's weak consumption alongside Europe's insufficient investment and excessive US spending. European officials emphasized cooperation, treating currency policy as one element of the wider discussion. European officials would ideally obtain access to Beijing's internal financial figures for fresh yuan assessments, although that prospect is considered unlikely. An ECB spokesperson said the dialogue would examine relevant economic policies together, including the underlying causes of global imbalances and an orderly adjustment benefiting both sides and the world economy. The Bangkok discussions produced no breakthrough but were viewed as an opening for technical examination of the figures rather than political disputes.

German media reports suggest that research connecting yuan undervaluation with Germany's industrial difficulties directly prompted Chancellor Friedrich Merz's sharp change in China policy this month. Merz warned at a Berlin event last week that countries undermining markets through unfair subsidies, excess capacity, aggressive prices or artificially undervalued currencies should expect a response. Merz cited the Plaza Accord in June as a model for addressing manipulated currencies, referring to the 1985 agreement under which US pressure led Japan to accept sharp yen appreciation to reduce Japan's trade surplus. Many people in China view that agreement as damaging Japan's export competitiveness and contributing to decades of perceived stagnation. Global Times, a tabloid affiliated with People's Daily, responded that China would reject exchange rates as a justification for coercion or arrangements allowing major powers to determine other countries' futures.

European analysts believe a stronger yuan would help Europe's manufacturing regions and reduce the risk of a wider trade war. Centre for European Reform chief economist Sander Tordoir said a sufficiently large revaluation would have an effect; Tordoir co-authored a paper that reportedly helped persuade Merz to change China policy. Tordoir said most models indicate that a 10% change in the real effective exchange rate changes real net exports by an average of 1.5% of GDP. Tordoir argued that Beijing must choose between revaluing the yuan to ease pressure from trading partners, including the EU and India, and accepting higher trade barriers from those partners.

Garcia-Herrero said expectations for concessions were being moderated because China's companies have small profits that yuan appreciation would reduce further. Garcia-Herrero suspects China may pursue the European talks partly to obtain support for expanding international use of the yuan and discussing a world with several major currencies. However, Garcia-Herrero doubts that Europe can persuade Beijing to change currency intervention without US support and said the effort cannot succeed without the dollar.