The US-China Strategic and Economic Dialog is underway.  The topics span many issues. One of the perennials is the yuan’s real value and the Chinese trade balance. Here are two figures.
First, one needs to recall the distinction between bilateral and multilateral real exchange rates.
The figure highlights that the CNY is appreciating in real terms (see this post for a discussion of the components due to nominal appreciation and due to inflation). The bilateral appreciation is actually more marked than the multilateral. I think this phenomenon partly reflects the fact that it was becoming increasingly difficult to maintain the previous policy configuration, and (as I observed here) faster appreciation was going to become increasingly harder to resist.
The correlation of the CNY value with Chinese trade balance (with the world) is shown in Figure 2.
” source=”” alt=”chart” align=”left” size=”xlarge” nocrop=”true” clear=”true”]The trade balance has shrunk considerably. How much is due to exchange rate movements is the subject of an ongoing research project, although some results are reported here. The World Bank predicts the 2011 trade balance will be roughly the same in dollar terms, at around $250 billion (so shrinking as a share of GDP), shrinking to around $200 billion, before rising again in 2012 to around $230 billion.