Alice Han

Just to walk this back to first principles, the reason a currency's value matters relative to other currencies is that it decides the trade competitiveness or cheapness simply relative to other currencies.

So if China...

and it has been, devaluing its currency relative to other currencies around the world, it effectively is making its good cheaper relative to other goods around the world.

So that's why this currency issue remains salient when we're talking about trade imbalances.

You know, we've done some internal calculations over the last few years, and it seems that the currency could be devalued by as much as 20% if you are accounting for internal and external dynamics in the balance of payments.

We can go into the nitty gritty of the balance of payments and why they diverge so much from the customs data that the Chinese government officially present.

But I found compelling Brad Setz's point, and Brad Setz is really someone I rate highly in this space, based on the IMF data, we could see the currency being devalued between 18 to 30%, so as much as 30%.

And the reason this matters is because it is fundamental to China's trade surplus with America.

with Europe, with many countries in the rest of the world.

And it's fundamental to the fact that Chinese economy remains structurally very imbalanced.

You know, when you have a weak currency, it benefits the exporters, it benefits China's export-led growth model, but it does not benefit everyday households, everyday Chinese who are buying and choosing to use the CNY to purchase, say, foreign goods that are relatively then more expensive.

So it's baffling, I think, to a lot of Western observers why, as China wants to rebalance its economy, it remains still wedded to a low CNY model, because at the end of the day, it seems to be a disservice to the rebalancing efforts to support the household, to support domestic demand.

But my own take, and I want to get yours very quickly, James, is that

At the end of the day, as much as they talk about rebalancing, this whole economic model is still highly dependent on exports.

It's still highly dependent on the manufacturing sector.

And if anything, the five-year plan that we'll see unveiled fully in March seems to suggest that they want to double down on this manufacturing-led growth.

So I think even although they want to talk about more recently in domestic China, a stronger CNY, it's hard for me to see them let go of this weaker CNY policy.

But I looked at the data of China's currency devaluation since about 2021.

We've seen it go down 18%, whereas the other currencies like the dollar and the euro have risen since the end of 2021.

And more importantly than that, actually what we saw this year is