In the West, it is said that RMB is undervalued by 25 to 40% to U$ and other currencies. And in the US, an estimate of 41% devalued against U$ by Peterson Institute was widely picked up. Here is a question, how were the numbers figured out? Since RMB is nonconvertible at the moment, there is not a market for RMB valued by supply and demand, so all the figures must be calculated by an assumption. As a Consequence, a bias assumption could not be avoided while an exchange rate is put at front of a country’s interest.

In addition, it matters in considering Yuan value from the angle one stands. For example, Economist (March 17^th) cited again the so-called Big Mac Index showing its readers yuan is 49% below its fair-value benchmark with U$. I have 2 questions: 1) while looking at Big Mac price, why Economist forgot Mac’s labor cost in China? 2) why didn't Economist pick up Costa Coffee’s China prices as instead to show its readers?

The conclusion is arbitrary for a political purpose in the letter that the US politicians blamed China for maintaining Yuan devalued from the US-China trade deficit only. Similarly, any figures above calculated could not be more than a political purpose either. 

No one denies Chinese currency has been a political issue for a long time. It is no surprise that it is now becoming hot button again. As Jim O’Neill puts “it’s unfortunate that we (the West) have so much political angst around this.”  since Yuan “actually isn’t particularly undervalued anymore”. 

Is Yuan undervalued? It depends on your looking at it in a Politics way or an Economics way.