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Trade data for the month of July was released from China today. Exports in the dollar terms shrank by 4.4 percent in July and imports declined by 12.5 percent in July from a year ago. Chinese trade balance for the month of July came at $52.31 billion. Chinese yuan-denominated exports rose by 2.9 percent from a year back. Imports contracted by 5.7 percent. The yuan-denominated trade balance came at 342.8 billion.
These numbers imply the yuan exchange rate at 6.553 per dollar. We just wonder from where that exchange rate came from. The dollar-yuan exchange rates averaged at 6.6786 in July and the strongest reading for the month was 6.6358 per dollar in the onshore spot market and the offshore rate was even weaker. At this rate, China’s trade surplus would have been $51.3 billion. Hence we wonder where this extra billion came from. Why are the Chinese authorities using a higher exchange rate than the prevailing?
