Undervalued Yuan Has Worked Out Well For China, Says Kotak AMC's Nilesh Shah

At a time when Indian rupee has breached past 90 levels against the US dollar, Nilesh Shah of Kotak AMC has highlighted it is the undervalued currency of China, which has helped the country reach a trade surplus.

In a recent social media post on X, the market veteran argued that China's economic dominance is not entirely built on innovation but an ironclad intervention from its central bank.

Shah's observation comes at a time when the Indian rupee has faced pressure from global headwinds, depreciating to historic lows. He pointed out that Chinese Yuan has remained surprisingly stable in relation to its massive export growth.

Data shared by Shah confirms that China's trade surplus has indeed crossed $1 trillion in the first 11 months of the year.

"This massive trade surplus should result into significant appreciation of Yuan," Shah wrote on X. "Surprisingly, in this century Yuan has appreciated measly by about 15%."

Shah noted that the Yuan moved from approximately 8.28 against the dollar in 2000 to just 7.07 today. This is in contrast to Japan’s economic rise in the previous century, where the Yen appreciated by 81% between 1973 and 1995 despite similar trade surpluses.

The fund manager argued that this daily "band fixing" by the Chinese Central Bank allows Beijing to maintain export competitiveness artificially, accumulating the world's largest foreign exchange reserves in the process.

"One factor was probably not credited enough. Undervalued Chinese Yuan," Shah stated, asking, "What will be China’s trade surplus if its currency was market-determined?"