China’s RMB exchange-rate policy and gradual RMB appreciation: Goldman Sachs expects Beijing to favor gradual 3–5% annual RMB appreciation against the US dollar.

Overview

Goldman Sachs examines why Beijing may prefer a gradual appreciation of the renminbi against the US dollar. It argues that low-to-mid-single-digit annual appreciation best balances China’s manufacturing and technology ambitions with RMB internationalization, reduced trade friction and a stronger relative position in market-value GDP.

Core views

China’s expanding goods surplus is the starting point for the report’s argument. The surplus has reached 6% of GDP and more than 1% of global GDP, intensifying concern abroad about manufacturing displacement and prompting responses ranging from broad US tariffs to more selective measures elsewhere. Goldman Sachs views the RMB as substantially undervalued and says faster appreciation is often proposed as a way to reduce imbalances. However, it distinguishes what policymakers should do from what Beijing is likely to do: China’s stated priorities remain higher technology content, manufacturing strength and self-reliance, while recent macro policy has remained restrained despite weak growth. The institution therefore does not see domestic or global rebalancing as Beijing’s principal near-term objective. The report argues that gradual RMB appreciation could serve several of Beijing’s objectives at once. First, a modest rise against the dollar could be presented to trading partners as accommodation and potentially reduce tariff pushback while China continues to gain manufacturing share. Second, appreciation would support RMB internationalization. Chinese government bond yields are low—the 5-year yield is about 1.4% and the 10-year yield 1.7%—while the US 10-year Treasury yield is more than 300 basis points above China’s. If investors expect continued RMB strength, expected currency gains can partly offset this negative rate differential and make RMB fixed-income assets more attractive. Third, appreciation raises China’s GDP measured in US dollars and could help narrow the gap with US market-value GDP even if China’s nominal GDP growth slows. The report notes that China’s catch-up reversed during 2021–25 as nominal growth slowed and the RMB weakened, after strong outperformance from 2005–20. The central constraint is competitiveness. Rapid appreciation could eventually weaken exports and real GDP growth, but Goldman Sachs contends that a moderate 3–5% annual pace would not prevent further manufacturing-share gains. It evaluates competitiveness through the real trade-weighted exchange rate, which incorporates trading-partner currencies and inflation differences rather than focusing solely on USDCNY. Its global FX forecasts imply roughly 1% annual broad-dollar depreciation over the next several years, allowing RMB appreciation against the dollar without equivalent average appreciation against other currencies. China’s lower inflation is the second offset: the report projects Chinese inflation to run at least 1 percentage point below that of trading partners over the next few years, following a marked real RMB depreciation against trading partners during 2022–25, particularly on a producer-price basis. On the report’s arithmetic, the RMB could rise 2–3% annually against the dollar for several years without any real trade-weighted appreciation. Even a 5% annual rise could leave the currency meaningfully cheap relative to fair value: assuming a 2.5% annual real trade-weighted appreciation and a current 20% undervaluation, only half of the undervaluation would be removed after four years. Goldman Sachs says the initial undervaluation could be greater than 20%, and broad-dollar or inflation effects could be larger than assumed. This creates room, in its view, for gradual appreciation with marginal near-term competitive damage, improved foreign demand for RMB assets and progress in China’s relative dollar-GDP position. It also notes that this pace is broadly consistent with forward pricing over the coming year, making speculative positions less attractive in either direction and easing currency management. The institution treats the exchange rate as materially policy-directed. Although moves within the trading band are largely market-determined, it argues that the broader CNY path is shaped by the daily fixing, central-bank communication, intervention capacity and capital controls. A more rapid appreciation combined with stronger domestic-consumption support would, in Goldman Sachs’ view, better raise household purchasing power and reduce imbalances and trade tensions, but Beijing appears cautious on implementation. Recent daily fixings suggest policymakers want to slow the appreciation pace after the faster move from late 2025 through mid-2026. Goldman Sachs therefore continues to expect modest, low-to-mid-single-digit RMB appreciation in coming years, with USDCNY reaching about 6 at end-2028 and 5.50 at end-2031. It says a renewed large-scale tariff war or a major global downturn could alter that path by removing China’s export impulse. RMB strength should also support other Asian currencies because their correlations with CNY have risen in recent years.

Analysis framework

The report begins with China’s trade surplus and policy objectives, then weighs how a gradual RMB rise could affect trade friction, foreign demand for RMB assets and China’s market-value GDP. It tests the competitiveness trade-off through the real trade-weighted exchange rate, broad-dollar assumptions and inflation differentials, and uses a China-US nominal-GDP sensitivity analysis to illustrate the role of appreciation in dollar-based economic catch-up.

Methodology notes

• Macroeconomics

  Real trade-weighted exchange-rate assessment

  The report uses the real trade-weighted RMB, adjusted for trading-partner currencies and inflation differentials, as its main measure of international competitiveness rather than USDCNY alone.

• Macroeconomics

  China-US market-value GDP sensitivity extrapolation

  The report combines assumed China nominal-growth rates, a 4.5% annual US nominal-growth assumption and alternative RMB appreciation rates to show when China could catch up to US GDP measured at market exchange rates.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Renminbi (RMB/CNY)

  Expected to appreciate gradually against the US dollar under Goldman Sachs’ base case.

  Strengths

  Potential support from broad USD depreciation, lower Chinese inflation and policy management.

  Weaknesses

  Lower Chinese bond yields versus US yields reduce the standalone income appeal of RMB fixed income.

  Comparison

  The US 10-year Treasury yield is more than 300bp above China’s 10-year government bond yield.

  Risks

  A renewed large-scale tariff war or major global downturn could change the projected path.

• RMB-denominated government bonds and related fixed-income assets

  Expected RMB appreciation could make these assets more attractive to international holders by offsetting part of the rate disadvantage versus the US.

  Strengths

  Potential expected currency gains and support from RMB internationalization efforts.

  Weaknesses

  China’s 5-year and 10-year government bond yields are about 1.4% and 1.7%, respectively.

  Comparison

  US 10-year Treasury yields are more than 300bp higher than China’s 10-year yield.

  Risks

  The report’s currency-support mechanism depends on market expectations of sustained appreciation.

Key data

• China goods trade surplus6% of GDP; more than 1% of global GDPThe report identifies the growing surplus as a source of foreign policy concern.
• Expected RMB appreciation pace3–5% per year against the US dollarGoldman Sachs’ preferred likely policy path; described as having marginal near-term competitiveness effects.
• Broad USD trade-weighted depreciation forecastRoughly 1% per yearExpected over the next several years and cited as an offset to RMB appreciation versus the dollar.
• China inflation differentialAt least 1 percentage point below trading partnersGoldman Sachs projection for the next few years.
• Chinese government bond yields5-year about 1.4%; 10-year 1.7%The report contrasts these yields with a US 10-year Treasury yield more than 300bp higher.
• Illustrative RMB undervaluation20%Under the report’s example, 5% annual USD appreciation and 2.5% annual real trade-weighted appreciation would halve this undervaluation after four years.
• US nominal GDP growth assumption4.5% per yearUsed in the China-US market-value GDP catch-up sensitivity analysis.
• USDCNY forecastAbout 6 at end-2028; 5.50 at end-2031Forecast assumes no renewed large-scale tariff war or major global downturn.

Impact & implications

The report says a gradual RMB rise could allow Beijing to signal accommodation to trading partners, support the international use of RMB and help China’s relative dollar-GDP position without materially eroding near-term manufacturing competitiveness. It also expects RMB strength to be supportive of other Asian currencies.

Risks

• A renewed large-scale tariff war could remove China’s export impulse and change the RMB path.
• A major global economic downturn could remove China’s export impulse and change the RMB path.

What to watch

• The US employment report.
• The September Federal Reserve meeting.
• President Xi’s scheduled September 24 visit to Washington to meet President Trump.
• Daily CNY fixings, which the report uses as a signal of Beijing’s preferred appreciation pace.