IMF Warns China Stimulus Lacks Ambition, Says Yuan Undervalued

The International Monetary Fund has warned that China's stimulus measures are not ambitious enough to fix domestic imbalances that leave the yuan undervalued in real terms. Krishna Srinivasan, the IMF's Asia-Pacific department chief, said the currency's weakness "reflects the symptom" of those imbalances, speaking in Bangkok during the fund's annual meeting.

IMF puts undervaluation at 21.3% midpoint

The IMF's latest assessment in 2026 put the yuan's undervaluation in a range of 17.3% to 25.3%, with a midpoint of 21.3%. Srinivasan said Beijing's steps to revive demand, including a package announced last month that was labeled a "mini-stimulus," are not sufficient. "They need to be a lot more ambitious to address the imbalances," he said.

He said the yuan's real effective exchange rate, which measures a currency against a basket of peers after adjusting for inflation, has depreciated because of China's very low inflation rate. "That automatically provides a competitiveness boost," Srinivasan said. "That's been the reason why the trade surplus has increased over the years."

Trade surplus and global pressure

China's exports and the value of its currency have become a focal point of global debate. The country posted trade data on Wednesday showing it is headed for a record surplus this year in excess of the $1.2 trillion recorded in 2025. Leaders including German Chancellor Friedrich Merz have pressured Beijing to let the yuan strengthen to curb the flow of Chinese goods into their markets, which has hurt local producers and wiped out jobs.

China's reliance on overseas shipments for growth has continued to increase, as a real estate slump and weak job creation weigh on domestic demand. The exchange-rate question remains contentious because of disagreements over whether the yuan's valuation causes the imbalances or results from them.

Beijing defends currency management

China's central bank weighed into the debate last week with a rare and lengthy formal document defending its management of the currency. It cited IMF research on the yuan's undervalued real rate but argued that this should not be read as a judgment on the nominal rate, or as justification for calls to engineer yuan appreciation against specific currencies. The central bank said the IMF's policy recommendation for China is to rebalance its economy by expanding domestic demand, not to push for yuan appreciation.

Srinivasan said the Chinese government has left economic imbalances unaddressed for too long. That has contributed to the yuan's real depreciation and prolonged the resolution of other problems, including local government debt risks.