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Evidence that China is no currency manipulator

S&P Global Ratings has thrown cold water on President Donald Trump's claims of Chinese currency manipulation.

A look at key data points provide little indication of Beijing pushing the yuan lower, Paul Gruenwald, Asia-Pacific chief economist at the ratings agency, told CNBC on Thursday.

"Ten years ago, the case for Chinese currency manipulation was clear, with all the indicators flashing yellow or red. But if we fast-forward to the present, China comes out looking quite okay."

Over the past decade, Beijing's current account has come down from 10 percent of gross domestic product (GDP) to 2 percent, the yuan has appreciated more than any country in the region in terms of real effective exchange rates, and reserves as a percent of GDP have gone from 50 percent to 25 percent, Gruenwald explained.

That's not your typical scenario of currency manipulation, in which current accounts fail to narrow, the local currency does not appreciate and central bank reserves rise.

Gruenwald's findings follow Trump's repeated accusations that Beijing was keeping its currency artificially low against the dollar to boost Chinese exports. In an interview with Reuters last month, the president said the Asian giant was a "grand champion" of currency manipulation, despite U.S. Treasury Secretary Steven Mnuchin telling CNBC that he was not yet ready to pass judgment on the matter.

Instead of focusing on the foreign exchange, Gruenwald recommended the White House pursue China's other areas for improvement, including intellectual property rights and a level playing field for bilateral investments.

Chinese yuan and dollar
China Photos | Getty Images
Chinese yuan and dollar

Breaking down the data

In a report of his findings released on Wednesday, Gruenwald noted that Taiwanand South Korea actually demonstrated the most proof of state-engineered depreciation.

He came to this conclusion after comparing three data points — current accounts, real effective exchange rates, and official reserves — across nine Asia-Pacific economies from 2006 to 2016.

Taiwan and South Korea have witnessed rising current account balances since 2006, while the mainland saw an eight percentage point dip, the second-largest decline of the group, he found.

Meanwhile, the yuan was actually the strongest performer, having increased 45 percent during the ten-year period, while the Korean won depreciated the most, by 16.5 percent.

Finally, the mainland logged a 12 percentage point decline in its ratio of official reserves as a percentage of gross domestic product, while Taiwan and Thailand saw their reserves-to-GDP ratios rise the most over the past decade, by 13 and 12 percentage points, respectively.

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