Experts Clash Over Whether China's Currency Is Undervalued or Needs Reform

Brad Setser, known for his "China Shock 2.0" thesis, contends that China's currency is significantly undervalued and should rise. In contrast, Gita Gopinath and two other economists claim that a stronger renminbi would worsen deflationary pressures and cut foreign demand, worsening trade imbalances. They propose structural changes to boost internal consumption instead of currency adjustments. Setser counters that delaying action is risky, citing projections that China could soon export 20 million cars a year, potentially one-third of all cars sold abroad.