China implemented reform of the RMB exchange rate regime from July 2005, and since then the RMB has been appreciating steadily in value against the US dollar. During this time, China's exports have continued to increase, seemingly unaffected by the appreciation of the RMB.

At the end of July 2008, after the RMB had appreciated by about 18%, it suddenly entered a 20-day period of fluctuation. After this period, the RMB continued its general upward trend, albeit much slower. At the same time, however, in the wake of the global financial crisis, China's exports began slowing down, and many factories closed down because of the slump in world demand. As a result, in November China's exports indicated negative growth of 2.2%, an historic regression of hitherto seemingly inexorable export growth.

When the RMB median rate to the US dollar dropped from 6.8349 to 6.8505 on 1 December, it kicked off another round of depreciation. This time it came with a slump, which appeared to be a signal that China will begin a period of steady RMB depreciation in order to support domestic manufacturers and to enhance the current account surplus, which contributed over 7% of China's GDP in 2007.

There's no denying that the depreciation of the RMB will be helpful to Chinese exporters. Yet the general long-term trend seems rather to be one of appreciation. Currently, the drop in China's exports is less connected with the appreciation of the RMB as with the deflated purchasing power from abroad. Hence the critical priority now is to implement industrial restructuring, and to this end the Chinese government is likely to introduce different measures to encourage exports such as duty adjustments and fiscal subsidies.