EU plans high-level China currency talks as fears of new trade shock mount

The upcoming talks will focus on global imbalances and the economic policies behind them. Europe wants to discuss whether China’s currency is undervalued and whether that helps Chinese exports. The wider issue includes China’s weak domestic consumption, Europe’s underinvestment, and America’s overspending. These imbalances affect trade, industry, and economic stability across regions.

The currency issue will be handled carefully. European officials raised it in Bangkok using diplomatic language rather than accusing Beijing directly. They want to explore whether exchange-rate policy can help reduce trade tensions. Ideally, they would also see China’s internal financial data to make a new assessment of the yuan’s value.

The first meeting is planned for the week of November 23, led by EU economy officials. A larger meeting may follow around the turn of the year, involving Christine Lagarde, Valdis Dombrovskis, and Kyriakos Pierrakakis. It would revive a formal EU-China format not used for more than a decade.

A currency is called undervalued when its exchange rate is considered lower than its underlying economic value. That value can be judged using trade patterns, prices, productivity, inflation, and other economic indicators. In practical terms, an undervalued yuan means foreign buyers may need fewer units of their own currency to purchase Chinese goods than they otherwise would.

The mechanism works through prices. If the yuan is weaker against the euro, Chinese products can appear cheaper in Europe, even when their prices inside China have not changed. Exporters may then sell more abroad or compete more aggressively. Trading partners can view this as an advantage, especially when China already runs a large surplus.

China disputes this interpretation. Beijing points to the yuan’s nearly 10 percent rise against the euro in 2026. Analysts counter that China’s flat inflation and falling producer prices may have erased much of that gain in real terms. Estimates of undervaluation therefore remain contested.

The article gives two prominent estimates for the yuan’s possible undervaluation. The International Monetary Fund suggested this year that the currency could be undervalued by as much as 21 percent. Researchers at the Centre for European Reform placed the figure closer to 30 percent. These are estimates, not an agreed measurement.

The difference comes from the methods used to judge a currency’s fair value. Analysts may compare prices between countries, examine trade surpluses, or assess inflation and economic fundamentals. Chinese think tank CF40 also found considerable room for the yuan to strengthen, based on Chinese and American prices. That supports the idea that the currency may be cheaper than comparable economic conditions imply.

China rejects the conclusion that it manipulates the yuan to boost exports. Beijing highlights the currency’s nearly 10 percent appreciation against the euro in 2026. Alicia Garcia-Herrero argues that falling Chinese producer prices have offset this rise in real terms, keeping the debate unresolved.

Europe’s concern is based on a simple price effect. If the yuan is kept weaker against the euro, Chinese exporters can offer products at lower euro prices. European buyers may then choose those goods more often, while European manufacturers face tougher competition. The pressure can spread across industries that already struggle with weak investment and changing global demand.

The mechanism is not limited to exchange rates. BusinessEurope said China restrains the appreciation that a large surplus would normally produce. It argued that this keeps exports artificially competitive and compounds direct state support. In that view, currency policy adds to subsidies or other government assistance, giving Chinese producers an extra advantage.

European leaders describe the result as a “China shock 2.0” for European industry. They want to address the issue through dialogue rather than appearing to gang up on China with the United States. Currency policy is one possible area for action, alongside the broader problems of China’s underconsumption and Europe’s underinvestment.

China rejects the claim because it says exchange-rate policy is not being used to manipulate exports. A paper published by the People’s Bank of China stated that China had no need or intent to gain competitive advantages through currency devaluation. Governor Pan Gongsheng also argued that global imbalances cannot be solved simply through exchange-rate changes.

Beijing points to recent currency movements as evidence. Official data show that the yuan strengthened by almost 10 percent against the euro in 2026. China also argues there is no straightforward relationship between exchange rates and a country’s current-account balance. That challenges Europe’s assumption that a large surplus proves deliberate currency suppression.

The dispute remains open because the yuan’s nominal rise may not tell the whole story. Alicia Garcia-Herrero said flat inflation and years of falling producer prices in China have made the appreciation disappear in real terms. Europe therefore continues to question whether the currency remains effectively too weak, despite China’s public data.

Global imbalances are large, lasting differences between economies’ spending, saving, investment, and trade positions. One country may produce and export far more than it consumes, while another borrows or spends more than it produces. These patterns can create trade surpluses, deficits, financial dependence, and political tension. Exchange rates are only one possible part of the explanation.

The article describes China as underconsuming, meaning domestic demand is too weak relative to its productive capacity and exports. Europe is described as underinvesting, so it may not be building enough capacity to compete and grow. America is described as overspending, creating demand that can absorb foreign goods. Together, these patterns reinforce one another across the global economy.

The European approach is deliberately broad. Officials raised global imbalances rather than directly accusing China of currency manipulation. They want to discuss the deep causes and possible cooperation. The talks may examine currency policy, but the article suggests that lasting change would require adjustments in domestic consumption, investment, and spending as well.

The 1985 Plaza Accord was an agreement among the United States, Japan, West Germany, France, and the United Kingdom. They coordinated action to bring down the U.S. dollar’s value, which was considered too strong, and to reduce trade imbalances. The agreement is often remembered as an example of major economies addressing currency tensions through cooperation.

Its mechanism was coordinated foreign-exchange intervention and policy signaling. Governments sought to encourage their currencies to rise against the dollar, making U.S. exports more competitive and imports less cheap. The accord shows how currency disputes can be handled multilaterally, rather than through unilateral pressure or tariffs.

However, the provided article does not mention the Plaza Accord. It also does not state that Europe sees it as a possible model for the current dispute. The article only describes cautious EU-China talks about global imbalances, the yuan, and cooperation. Any direct comparison with 1985 would therefore come from outside knowledge, not this source.