For years, the US accused China of keeping the yuan artificially weak to juice its exports. Now the currency is strengthening, and roughly 25% of Chinese firms are bleeding money because of it.

The appreciation of the renminbi against the US dollar is creating a genuine policy headache for Beijing. Exporters who priced contracts in dollars are watching their margins evaporate as the yuan climbs, turning what looked like profitable deals into losses on the books.

The exporter squeeze

Here’s how the math works against Chinese exporters. A company signs a contract to deliver goods at a fixed dollar price. By the time payment arrives weeks or months later, the yuan has strengthened. That same pile of dollars now converts into fewer yuan, which is the currency the company uses to pay workers, suppliers, and rent. The technical term is “FX mismatch.”

Nearly one in four Chinese firms are reporting financial losses tied to exactly this dynamic. For smaller manufacturers operating on razor-thin margins, the difference between a profitable quarter and a loss-making one can come down to a few percentage points of currency movement.

The pain is not evenly distributed. Large state-owned enterprises with sophisticated hedging operations can absorb some of the blow. But the vast ecosystem of small and mid-sized exporters often lack access to or expertise in currency hedging instruments.

Beijing’s balancing act

The PBOC has historically managed this tension through its daily fixing mechanism, setting a reference rate that guides where the yuan trades. Policymakers appear focused on managing exchange-rate volatility rather than targeting a specific level.

Nomura’s Julia Wang projects only mild appreciation ahead, expecting the yuan to settle around 6.7 per dollar by the end of the quarter. Her broader point is worth noting: greater flexibility in the currency matters more than raw strength when it comes to the yuan’s long-term international role.

Greater flexibility in the currency is more important than strength for RMB internationalization.

The internationalization puzzle

Beijing has been pushing to make the yuan a more widely used currency in global trade and finance. The toolkit includes offshore clearing banks that facilitate yuan-denominated transactions outside mainland China, and currency swap lines with central banks around the world.

But there is a fundamental constraint that no amount of infrastructure can fully overcome: China still maintains significant capital account restrictions. Money cannot flow freely in and out of the country the way it does with the dollar, euro, or yen. For institutional investors and multinational corporations, that friction is a dealbreaker when considering the yuan as a reserve or settlement currency.

The US-China trade relationship adds another layer. Washington spent years formally accusing Beijing of currency manipulation, arguing the yuan was kept artificially cheap to give Chinese goods an unfair price advantage. Any aggressive move by the PBOC to weaken the currency and relieve exporter pressure could reignite those tensions, particularly in an era where tariffs and trade restrictions are already elevated.