As 2025 draws to a close, financial markets are closely watching the Chinese yuan's trajectory after its recent rebound against the US dollar. Shen Jianguang, chief economist of JD Group, identifies four structural pillars likely to drive sustained RMB appreciation through 2026.
1. Expanding Trade Surpluses: China's current account surplus continues widening, with export resilience offsetting slower domestic consumption growth. This creates fundamental support for currency strength.
2. Trade Tension De-escalation: Reduced friction between the Chinese mainland and major trading partners improves market sentiment toward RMB-denominated assets.
3. Purchasing Power Parity Gap: The RMB remains undervalued by 10-15% against major currencies based on IMF assessments, suggesting room for upward correction.
4. Dollar Weakness Potential: With US inflation cooling faster than expected, markets anticipate Federal Reserve rate cuts in early 2026 could pressure the greenback.
While short-term volatility remains possible, Shen emphasizes these converging factors create what he calls "a perfect storm for yuan appreciation" through next year. The currency's performance could reshape investment flows across Asian markets in 2026.
