On July 21, 2005, China surprised the world by abandoning its peg to the dollar that had been in place since 1995. It immediately appreciated by 2% and gradually appreciate until the financial crisis hit in 2008. It then looked to have been “re-pegged until late 2010, when it began appreciating again.  

Since that fateful 2005 decision, the yuan has appreciated by a third against the US dollar in nominal terms. In real terms, it has been somewhat more as China has experienced somewhat faster inflation than the US. In terms of consumer prices, US inflation has averaged 2.1% since mid-2005 while China's inflation has averaged 2.9%.  

In the five years before the currency regime change, China's trade surplus with the US (using BEA data), rose dramatically. It doubled from $63.8 bln in 2000 to $162.3 bln in 2004. Over the next 10-years, China's trade surplus rose another 70% from $202.3 bln in 2005 to $343.1 bln in 2014. One clear implication is that currency appreciation alone as been insufficient to bring the trade accounts into balance. 

From an even long-term perspective, note the sequence of events. When China began the liberalization process, there were several different exchange rates for the yuan. Overall the currency was being devalued. On the eve of the Plaza Agreement in 1985 to drive the dollar lower, there were a little less than three yuan to the dollar.  

Chinese officials engineered a gradual depreciation of the yuan in the early 1990s and combined the exchange rates into a single one, engineered a sharp depreciation. At the beginning of 1994 there were 8.7 yuan to the dollar. Some accounts of the origins of the 1997-1998 Asian financial crisis emphasize this significant Chinese devaluation as a key factor changing the competitive landscape in East Asia.  

The appreciation of the yuan since 2005 brings it back toward the levels that were prevailing prior to the large depreciation in 1994. The IMF has recently indicated that it no longer regards the yuan as under-valued. The US Treasury disagrees. Some US officials see the widening trade surplus as evidence that there is still room for currency adjustment.