The Daily Populous Monday June 22nd, 2026 day edition
Authored by scmp.com and submitted by Any-Original-6113

German Chancellor Friedrich Merz signalled a major shift in Berlin’s economic relations with Beijing on Friday, saying the Chinese currency was undervalued by 30 per cent, well above the International Monetary Fund’s estimate of “about 16 per cent”.

Speaking in Brussels after a European Council summit, Merz said China was “flooding markets” through the use of “high subsidies”, adding that “subsidising overcapacities” along with a “currency that isn’t convertible freely … is not acceptable”.

Merz’s comments are some of his most forceful remarks on Beijing since becoming chancellor last year and address one of the major factors in the debate over industrial overcapacity.

In Europe, the yuan’s rate against the euro is seen as one of the major reasons for a surge in Chinese shipments, making Chinese goods cheaper for overseas buyers.

This, in turn, has led to a gaping trade deficit, much to the chagrin of European leaders, who are concerned that local manufacturers are in peril.

Merz pointed to the Plaza Accords as an example of how such matters could be addressed.

newzinoapp on June 22nd, 2026 at 06:22 UTC »

The Plaza Accord comparison is interesting but the conditions are pretty different. In 1985, the yen went from 242 to 153 per dollar in a single year. The BOJ's response (loose money to soften the blow) created the asset bubble that became Japan's lost decade. China's officials know this history inside out. The PBOC runs a managed float with daily fixing and capital controls that give it far more control than Japan had. A 20-30% revaluation (what Merz is asking for) would hammer Chinese exporters, and Beijing has no incentive to agree unless the EU threatens tariffs that hurt worse.

vhu9644 on June 22nd, 2026 at 05:42 UTC »

I am a bit worried that even if they do a Plaza accord, it doesn't drastically change the situation.

Japan was able to largely absorb the Plaza Accords, even if it led the the eventual popping of their bubble. But at that time its property value was extremely overvalued and it had entrenched players who largely captured the legislature and caused several zombie firms. This, followed by a stubborn refusal to switch towards networked services and software (despite having the talent), partially driven by the same entrenched players largely being hardware companies meant that they just missed the growth train. They still grew post the Plaza Accords, just the US grew much faster (which is why it looks flat in USD).

The issue is China actively stopped both of the core issues from occurring, at great cost to its economy. It prevented the ANT group IPO, which both signaled that the state was always above the entrenched players. Furthermore, it actively (either accidentally or not) legislates against a profit-matrix that encourages rent seeking from companies (killing tutoring, or internet-based rent extraction). It also deflated it's own property bubble on its own volition, killing a lot of property speculation. These were costly - it chilled VC funding into Tech and decimated household wealth (and might lead to a generation of underconsumption, though that could also be due to how fast they rose and how poor they are). But these prevent the same pattern from occuring in China that occurred in Japan. Even if this isn't a concerted plan to give them resilience, the end result is that they seem more resilient than Japan was. (EDIT, wrt to a currency appreciation deal like what is focus of the article. People aren't feeding articles to their LLM as context).

On top of this, China is not beholden to the U.S. for security. On the contrary, it is contained by the U.S. security-wise, and so it has more options to maneuver geopolitically than Plaza-accord Japan did. The better comparison might be to Germany (also hit with a plaza-accord, but did not have a lost decade) due to not making a lot of strategic errors and still continuing to run an export-driven economy.

Furthermore, even if Chinese currency increased by 30%, it doesn't fix structural competitiveness caused by internal supply chains and vertical integration. To stop that you'd need to ban exports where China makes a large portion of it, but then that's a massive increase in cost for your own economy. It might handle some very low-margin industry (and that might help the global south) but China also is already owning factories in the Global South, and so it seems to have hedged against that too. And finally, China still has Rare Earths export controls on the horizon, as it is delayed until November of this year.

China is asking for what seems to be an easing of the export ban of advanced semiconductor manufacturing materials in exchange (at least according to other reporting (Aggregation?) I could find). It doesn't sound like this comes from a position of desperation.

Any-Original-6113 on June 22nd, 2026 at 04:31 UTC »

German Chancellor Friedrich Merz signalled a major shift in Berlin’s economic relations with Beijing on Friday, saying the Chinese currency was undervalued by 30 per cent, well above the International Monetary Fund’s estimate of “about 16 per cent”.

Speaking in Brussels after a European Council summit, Merz said China was “flooding markets” through the use of “high subsidies”, adding that “subsidising overcapacities” along with a “currency that isn’t convertible freely … is not acceptable”.

Merz’s comments are some of his most forceful remarks on Beijing since becoming chancellor last year and address one of the major factors in the debate over industrial overcapacity.

In Europe, the yuan’s rate against the euro is seen as one of the major reasons for a surge in Chinese shipments, making Chinese goods cheaper for overseas buyers.

This, in turn, has led to a gaping trade deficit, much to the chagrin of European leaders, who are concerned that local manufacturers are in peril.

Merz pointed to the Plaza Accords as an example of how such matters could be addressed.

P.s. More about Plaza Accords https://en.wikipedia.org/wiki/Plaza_Accord