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The Yuan’s Quiet Rise and Next Week’s Summit

Published on May 7, 2026

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Marc Chandler
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The Yuan's Quiet Rise and Next Week's Summit

The offshore yuan appreciated nearly 5% against the dollar last year. The onshore yuan gained about 4.25%. This year has picked up were 2025 left off. Through yesterday, the offshore yuan has added roughly 2.4% this year, the onshore unit 2.6%. That puts it second among emerging market currencies in the region, trailing only the Malaysian ringgit's 3.5% advance. The yuan is not sprinting, but it is moving — and in a direction that Beijing, at least provisionally, is tolerating, if not encouraging.

The PBOC's daily fix is the tell. The reference rate was set today at CNY6.8487, the lowest since March 2023. The band around it is 2%, though the currency rarely tests those edges. What matters is the direction of the fix itself, and the direction is unmistakably toward a stronger yuan. Our working assumption is that the fix could drift toward CNY6.80, and perhaps CNY6.68-6.70 in the months ahead, consistent with our broader bearish dollar view. The PBOC rarely telegraphs its tolerance levels, but the cumulative signal from the fixes is hard to misread.

Harder to answer is why now, and how far. China's structural position is unambiguous: a large trade and current account surplus means that in aggregate, China must continue to acquire foreign assets. The surplus does not disappear; it gets recycled. The question is by whom and into what. Historically, the PBOC and state-owned banks have been the primary recyclers — parking surpluses in US Treasuries and agency paper, effectively helping to fund American deficits and anchoring the yuan. But outbound direct investment flows and some portfolio outflows suggest that the recycling has become less exclusively state-directed. Private Chinese capital is moving, too.

What is being acquired matters as much as who is acquiring it. The PBOC continues to accumulate gold, according to official reports — part of a broader global central bank trend that accelerated after Russia's reserves were frozen in 2022. Yet the structural reality remains: America's large current account deficit means foreign investors, including Chinese ones, are continuously accumulating US assets. These global imbalances--China's surplus recycled into dollar-denominated claims, America's deficit financed by foreign inflows--create a deep structural entanglement that limits how far decoupling from the dollar can actually go in practice.

That said, the direction of travel on the margins is notable. China's CIPS payment system is seeing increased activity, and the yuan appears to be settling a larger share of China's trade. This is a slow-moving structural shift, not a sudden break. But the direction is consistent and worth tracking.

All of which sets the backdrop for next week's Trump-Xi summit. The once-delayed meeting arrives at a peculiarly loaded moment. Before the two leaders sit down, China will report two sensitive data points. The April trade balance is due, and it appears to have recovered after slipping in February and March from January's record surplus of $122.4 billion. April CPI and PPI land Monday, and the expectation is that both will confirm China has moved beyond its deflation and disinflation period. Neither data point is likely to calm nerves in Washington about the bilateral imbalance.

The summit agenda is already crowded, and the Middle East war and the shutting of the Strait of Hormuz threatens to overwhelm everything else. Beijing cannot be pleased that its vessels have been denied free maritime transit, a constraint the US has imposed using the same secondary sanctions architecture that Treasury Secretary Bessent has publicly criticized when China has deployed it against American rare earth interests. The asymmetry is not lost on anyone.

Initially, Beijing seemed to deploy blocking legislation to discourage Chinese banks and companies from honoring US sanctions against Chinese refiners. However, subsequent reports suggest Chinese officials provided verbal guidance encouraging domestic banks to to grant fresh loans to the refiners. The situation is far from clear.

Then there is Taiwan. It is not exactly a state secret that a significant US arms sale to Taipei is being readied, timed for shortly after the meeting. Beijing presumably knows this too.

And underneath it all sits the rare earths question, which is becoming less a background issue and more a central one. Washington has run down its arsenal between Ukraine and the ongoing Iran conflict. Reconstituting it requires processed rare earths, and China dominates that processing.

The yuan's appreciation, the PBOC's gentle fixing lower, the surplus recycling dynamics, and the charged context of a high-stakes summit are not separate stories. They are threads of the same one. A clash or a quid pro quo between Washington and Beijing is coming. The only question is the form it takes.

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About Marc Chandler

He has been covering the global capital markets in one fashion or another for more than 30 years, working at economic consulting firms and global investment banks. After 14 years as the global head of currency strategy for Brown Brothers Harriman, Chandler joined Bannockburn Global Forex, as a managing partner and chief markets strategist as of October 1, 2018.

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