The RMB’s Illusory Strength on the Eve of an Economic Avalanche and the CCP’s Weaponization of Trade

The RMB’s Illusory Strength on the Eve of an Economic Avalanche and the CCP’s Weaponization of Trade

[People News] On December 25, 2025, the offshore renminbi broke above the 7.0 threshold against the U.S. dollar, and the onshore renminbi rose past the 7.01 mark against the dollar, reaching its highest level since September 27, 2024. Two days later, the Standing Committee of the National People’s Congress of the Chinese Communist Party passed a revision to the Foreign Trade Law, which will take effect on March 1, 2026. The new law strengthens the state’s sovereign control over trade. This series of macroeconomic adjustments is not random, but carries strong characteristics of state intervention and government leadership. It is intended to relieve pressure and provide “oxygen” to China’s economy as it faces major stress and challenges from a downward cycle. Yet this precisely indicates that the CCP is deeply trapped in structural economic imbalances. Any non-market behavior will only exacerbate this trend and hasten a collapse.

The Awkward Mechanism Behind the RMB’s False Strength

This appreciation of the renminbi was not driven by stronger economic fundamentals, but was purely a passive appreciation, to some extent the product of geopolitical compromise. Its causes can be broken down into multiple macroeconomic variables and political factors.

First, the pullback of the U.S. dollar index was a key external driver. On December 11, 2025, the Federal Reserve completed its third interest-rate cut of the year, lowering the target range for the federal funds rate to 3.50%–3.75%. This cut narrowed the interest-rate differential between the dollar and the renminbi and was a key factor pushing the RMB exchange rate higher. In 2025, the Fed cut rates by a cumulative 75 basis points, causing the dollar index to fall from 110 at the beginning of the year to 98 at year-end. This shows that the renminbi’s appreciation was not due to strong domestic demand in China, but rather to adjustments in U.S. monetary policy—passive appreciation in line with the monetary strategy of the U.S. Trump administration.

Second, foreign-exchange expansion under a trade surplus artificially pushed up the renminbi. In the first 11 months of 2025, China recorded a trade surplus of USD 1.076 trillion, a historic high. This was mainly the result of exchange-rate manipulation under the Sino-U.S. trade war, export front-loading, entrepôt trade, and state subsidies for electric vehicles—the “new three”—creating a short-term export illusion and bringing back a large amount of foreign exchange. The main driver of the CCP’s export surplus is government support and state leadership, which constitutes extremely unfair competition that disrupts international trade and will face collective containment by the international community in 2026. Put bluntly, it is not that the CCP’s economy has withstood the pressure, but that China’s economy cannot. It can only hang on by relying on government trickery and dirty tactics.

Third, the short-term effect of year-end foreign-exchange settlement. As the year draws to a close, export enterprises need to settle a year’s worth of income. They have accumulated a considerable amount of U.S. dollars, which must be converted into renminbi to pay wages and settle accounts receivable. This creates a sudden, excessive short-term demand for the RMB, pushing up its price.

Fourth, the appreciation of the renminbi exchange rate is a stopgap measure by the CCP amid Sino-U.S. geopolitical conflict. 2025 is a year of Trump tariffs. From the first half of the year to the second half, after many twists and turns, Chinese exports trembled under Trump’s tariff cudgel, at a loss as to what to do. To date, U.S. tariffs on China remain at 57%. The exchange rate is a double-edged sword: RMB depreciation benefits exports but hurts the attraction of foreign capital; RMB appreciation hurts exports but benefits the attraction of foreign capital. Weighing the pros and cons, the CCP adopted a dual exchange-rate manipulation strategy—allowing the RMB to appreciate against the dollar to reduce exports to the U.S., while depreciating against the euro to increase exports to the EU. Since the beginning of the year, the RMB has appreciated 4.16% against the U.S. dollar, but has fallen 8.7% against the euro.

However, weak domestic demand is an institutional shortcoming of China’s economy. Privileged elites occupy the vast majority of income distribution. This group is precisely those who proclaim “no regrets entering China in this life, homes in California,” earning renminbi while spending U.S. dollars. How can domestic demand be boosted? The CCP is anxious. To this end, on December 16 it specially published an article in Qiushi titled “Firmly Implementing the Strategy of Expanding Domestic Demand,” merely shouting empty slogans. This stems from the irreconcilable contradiction between the CCP’s dictatorial authoritarian political system and economic development—an unsolvable problem.

Although RMB appreciation may stabilize foreign-exchange reserves and attract foreign capital in the short term, it produces significant negative transmission effects on the macroeconomy. First, it delivers a major blow to the export sector; second, appreciation intensifies deflationary pressure; third, it aggravates structural economic imbalances and weakens fiscal sustainability; fourth, it distorts the global allocation of economic resources and intensifies global trade frictions.

Revising the Foreign Trade Law: Instrumentalizing and Weaponizing Export Trade

On December 27, 2025, the Standing Committee of the National People’s Congress of the CCP passed a revision to the Foreign Trade Law of the People’s Republic of China, which will take effect on March 1, 2026. The law comprehensively and systematically revises the current statute. Its main contents include: advancing high-level opening-up and promoting high-quality development of foreign trade; safeguarding national sovereignty, security, and development interests; strengthening the protection of intellectual property related to foreign trade and enhancing operators’ compliance standards and risk-response capabilities; establishing a trade adjustment assistance system; stabilizing industrial and supply chains; supporting the development of digital trade, green trade, and cross-border financial service systems; and improving the legal framework for responding to external challenges, including countermeasures. The law requires that foreign trade work adhere to serving national economic and social development and advance the building of a strong trading nation.

Judging from the wording of the revisions, the implications are very clear. The underlying meaning of this revision lies in strengthening state intervention and strategic deterrence in response to the escalation of global trade frictions. The revision emphasizes “safeguarding national sovereignty and security,” redefining foreign trade as a “sovereign weapon,” expanding the government’s authority to control exports, including countermeasures and trade adjustment assistance systems. This reflects a strategic shift from “managed openness” to “deterrent law.” Through this move, the CCP aims to elevate national trade policy to the level of law, legalize state-led trade, and thereby build a strong trading nation. Simply put, in all future international trade frictions, the CCP will unambiguously mobilize all state power to counteract. As stated at this year’s Central Economic Work Conference, this means strengthening “international economic and trade struggle.”

This revision is highly likely to trigger even more intense international trade disputes in the future, further aggravate the CCP’s structural economic imbalances, and reveal the CCP’s frantic mentality as its export-oriented model faces enormous pressure from international containment. It appears that in the 2026 trade war, the CCP will not be facing only the United States, but a global alliance.

Warning Before the Economic Avalanche: False Prosperity Cannot Conceal Structural Collapse

In summary, the RMB’s false strength and the weaponized revision of the Foreign Trade Law are merely the CCP’s final death throes under downward economic pressure. This series of actions at the end of 2025—from passive appreciation to legal reinforcement of state intervention—may appear on the surface to have stabilized the situation, but in reality they expose deep-seated institutional maladies in China’s economy: chronically weak domestic demand, excessive reliance on exports, worsening structural imbalances, and irreconcilable contradictions with the global trading system.

Entering 2026, with the implementation of the revised Foreign Trade Law, the CCP will elevate trade to a “sovereign weapon,” strengthen countermeasures, and reinforce state leadership. This will undoubtedly accelerate collective counteractions by the international community. China’s export illusion will quickly shatter, the surplus myth will be unsustainable, and foreign-exchange reserves will face the risk of rapid depletion.

At the same time, the negative impact of RMB appreciation on exports will fully manifest: a sharp drop in manufacturing orders, explosive employment pressure, and a deepening deflationary spiral. There will be no hope of boosting domestic demand; capital flight by privileged elites will accelerate; and the real-estate debt chain will be on the verge of rupture. The CCP’s dream of becoming a “strong trading nation” will be completely shattered amid the global wave of de-risking, and China’s economy may face the most severe hard landing in its history.

(First published by People News) △