Is China Starting a Currency War?

A screen showing stock prices at a securities company in Beijing on August 5.
A screen showing stock prices at a securities company in Beijing on August 5. GREG BAKER/AFP/GETTY IMAGES

Welcome to the first edition of Foreign Policy’s China Brief, where every week we’ll bring you news and analysis from the most populous country in the world: the one with the angriest crowds, the hottest tech, and the smelliest dofu. I’m James Palmer, a senior editor at FP previously based in Beijing for 15 years. Every week, I’ll break down the news and explain it here.

What we’ve got today: China and the United States go tit for tat over currency, Hong Kong is split between police and protesters, and China criticizes India over Kashmir and Huawei.

Trump Accuses China of Manipulating the Yuan

A cease-fire in the ongoing U.S.-China trade war seems a long way off. This week, U.S. President Donald Trump directed the U.S. Treasury to officially designate China as a “currency manipulator” after Beijing allowed the yuan to depreciate below the symbolic level of 7 yuan to the U.S. dollar. The change itself is less than 2 percent—a smaller adjustment than market-driven fluctuations last summer—but the psychological threshold is an important one.

With the new designation, Trump followed through on a promise from his first day in office. The currency manipulator label carries particular weight in both U.S. and Chinese politics. In the United States, calling for it is a way to seem tough on Beijing, though China arguably stopped manipulating its currency in 2014. But the issue goes far deeper in China, where currency and foreign exchange are national obsessions.

The almighty yuan. In China, state media regularly reports on the yuan’s prospects for replacing the dollar as the global reserve currency. One of the bestselling texts of the 2000s was Song Hongbing’s conspiratorial book Currency Wars, which posited that a secret cabal used currency to keep China down and that fiat currency was a plot by Western banks.

In conventional Chinese economic circles, the Plaza Accords of 1985, where the United States and Europe pressured Japan into allowing the yen to appreciate, remain a bugbear. In China, the Plaza Accords are widely blamed (perhaps unfairly) for Japan’s “lost decades,” making it exceptionally unlikely that Chinese leaders would ever accept the United States putting pressure on the appreciation on the yuan.

The future of the trade war. Trump’s trade war shows no signs of being resolved, and markets are reacting accordingly: U.S. stocks dropped by nearly 3 percent on Monday and—despite recovering slightly on Tuesday—are losing steam again Wednesday.

One reason the reaction to the currency manipulator label has been so strong is that individual actions might push things one way or another but China perceives that the overall trend in its relationship with the United States to be downhill. Increasingly, the trade war looks like a symptom of a gradual decoupling—and one that could persist long beyond Trump.

What We’re Following

Hong Kong’s activists fight the law. Clashes between protesters and police continue in Hong Kong with seemingly no end in sight. Individual protests are now increasingly focused against specific police actions, from the alleged assault of a female protester to the arrest of a student with a laser pointer on the grounds of “possessing an offensive weapon.”

The level of anger and violence also seems to be increasing weekly—especially as white-shirted gangs, widely believed to be mainland imports, keep attacking protesters (not always successfully). In FP, Hilton Yip raises the possibility of another mainland import to thwart the protesters: the paramilitary People’s Armed Police.

Islamophobia grows beyond Xinjiang. Beijing authorities have ordered the removal of Arabic and Islamic symbols from shops and restaurants, another sign that the anti-Muslim campaign in Xinjiang is spreading across the country. As I wrote in January, things could get worse: Beijing restaurant owners serving Xinjiang food have already put up signs saying they’re not Uighur in order to forestall attacks.

North Korea’s missile tests irk its ally. North Korea’s continued missile tests this week are still vexing China, although it has little choice but to try to court North Korean leader Kim Jong Un. Beijing has long been frustrated with Pyongyang’s provocations, and it’s finding it harder to steer its troublesome ally, Oriana Skylar Mastro argues in FP.

China pushes back on Kashmir. China has criticized India’s unprecedented move to abolish India-administered Kashmir’s special status. Beijing’s immediate concern is the region of Ladakh, which is affected by the move—and where China and India have their own border dispute.

For more news and analysis from the world’s fastest-growing region, subscribe to FP’s South Asia Brief, delivered on Tuesdays.

Tech and Business

The tourism threat. China has stopped granting individual tourist permits for travel to Taiwan, meaning that Chinese residents can only visit as part of organized groups. This isn’t the first time China has used its tourism clout this way, but it is a significant escalation in the campaign against Taiwanese President Tsai Ing-wen’s administration. It could backfire: China’s hope is that Taiwanese squeezed economically will choose pro-Beijing candidates in January’s election, but it could push angry voters to the polls.

A warning for New Delhi. Huawei remains the biggest proxy in the U.S.-China trade war, and India is the latest target. After Indian politicians raised security concerns about the Chinese telecommunications firm, Beijing privately warned that it would put “reverse sanctions” on Indian firms if restrictions were imposed. Of course, when the Chinese authorities throw the might of the state behind Huawei, it hardly helps its fraying case that it’s a private company with no ties to the Communist Party.

A blow to U.S. universities. Universities in the United States, already dealing with visa restrictions on Chinese students, are likely to take another blow from the weakened yuan. Foreign education is one of the main ways the Chinese upper-middle class spends its money abroad, and parents are acutely sensitive to exchange rate issues. Fewer Chinese students going abroad could be a benefit for the government, which is increasingly suspicious of foreign education.

Misplaced trust. Science reports on the “circles of trust” around the supposedly rogue Chinese scientist He Jiankui, the man behind the world’s first gene-edited babies. His experiments drew criticism both inside and outside of China, but it turns out that a surprising amount of people approved of his work. As cutting-edge scientific work increasingly moves to China, institutions that fail to do due diligence on ethical issues may end up paying a harsh reputational cost.

Graphic: China Is Backing Out of the United States

Long before this week’s currency depreciation, Chinese investments in U.S. industries have been declining, as shown above. The timing coincides with Trump’s election. But there’s more to the story: China’s regulatory crackdown on outbound capital has caused much of the decline, FP’s C.K. Hickey writes.

What We’re Reading

Silent for So Long, Elderly Gays Livestream at Full Volume,” by Fan Yiying, Sixth Tone

This piece beautifully captures how livestreaming and social media give older gay men in China a chance to be heard after decades of silence. “When I was young, I didn’t know who I was, and I didn’t have the chance to get to know men I adore,” one man told Fan. “I feel like I’m now making up for my loss.” Livestreaming is one of the few remaining outlets for public expression in today’s China.


A common word to describe life in urban China, mafan is usually translated as “annoying” or “troublesome.” But it’s a little more specific. Your little sister or your humming co-worker aren’t mafan, but bureaucracy and its ever-changing rules are. For something to be mafan implies that it’s going to take a tedious amount of time and effort to sort out, for no good reason—as the Sinologist Maura Cunningham points out, such as a trip to the DMV in the United States.

A few examples:

“I lost my ID card, and I have to go to the police in my hometown to replace it. It’s so mafan.”

“My university won’t give me my graduation certificate until I pay a hospital bill I’ve already paid, very mafan!”

“I got a nose job in South Korea, and now I can’t get in my front door until I officially re-register my face, too mafan!” (OK, that last one I made up.)

That’s it for this week.

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James Palmer is a senior editor at Foreign Policy. Twitter: @BeijingPalmer

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