Scott Bessent made a fortune spotting currency manipulation. He says Beijing’s $2.5 trillion black hole is ‘a problem for the Europeans’

The article says China’s yuan may be about 20% undervalued, with Brad Setser estimating it could trade to 6 or stronger and 10% to 20% higher if capital-account conditions remain unchanged. It argues Beijing is quietly suppressing the currency through off-balance-sheet dollar purchases totaling roughly $2.5 trillion, but U.S. Treasury has declined to label China a currency manipulator in 2025. The broader market focus is on U.S.-China leverage, including rare earth export controls and tariff back-and-forth, rather than an imminent FX policy shift.

Analysis

The market implication is less about a headline yuan revaluation and more about Beijing’s willingness to keep exporting deflation to preserve domestic stability. If the U.S. stops treating the currency as the centerpiece and instead focuses on tariffs, controls, and industrial policy, the bigger second-order effect is that China will likely lean harder on state-directed capital allocation and trade diversion rather than allow a clean FX adjustment. That supports a regime where the yuan can grind stronger only modestly while Chinese excess capacity continues to press margins globally, especially in industrials, autos, and capital goods.

For SAFE, the risk is structural erosion of the visible reserve stack as more intervention migrates off-balance-sheet. That makes the signal harder to trade from public reserve data, but it also raises the odds of a policy surprise if markets start testing how much quasi-sovereign balance-sheet can be mobilized without destabilizing domestic credit. The catalyst window is months, not days: a sharper RMB move likely requires either a renewed U.S. pressure campaign, a growth shock in China, or a PBOC decision to prioritize external normalization over export competitiveness.

Boeing is the cleaner beneficiary than the macro FX trade because even a symbolic procurement pledge can move near-term sentiment and backlog expectations without requiring a full policy shift. But any such upside is fragile: aircraft orders are politically useful optics, yet deliveries, financing, and timing can slip by quarters, so the equity reaction can outrun actual earnings contribution. The contrarian point is that the yuan may be less undervalued than bulls assume if capital controls remain tight and Beijing is already permitting incremental appreciation; in that case, the trade is not a major revaluation but a slow unwind of one-way positioning.

The real opportunity is in relative value, not outright directional FX. If China is choosing stagnation over confrontation, the winners are firms that sell headline-capex promises into the summit cycle, while the losers are exporters in Europe and Asia who remain trapped in a mildly stronger RMB but still-deflated China pricing environment. The next 1-3 months should be about positioning for a narrow band of outcomes: symbolic deals, limited yuan strength, and continued policy ambiguity rather than a regime break.

Key Decisions for Investors

• Long BA into summit headlines via 1-3 month calls or a call spread; risk/reward favors upside from any aircraft-order optics, but trim quickly if there is no concrete order language.
• Short a basket of Europe/Asia industrial exporters versus long U.S. defense/industrial beneficiaries if RMB appreciation stays modest; the thesis is that China exports deflation without delivering a broad re-rating.
• Avoid chasing outright long RMB/CFETS proxy exposure here; instead, wait for a policy shock or a failed summit to buy volatility on SAFE/China-related FX headlines, as the base case is controlled, incremental movement.
• Pair long BA vs short an airline/MRO-sensitive travel name on any order-driven spike, since backlog headlines can lift BA faster than they improve downstream capacity economics.
• If markets price a clean yuan revaluation, fade it with a short-duration options structure on China-facing industrial ETFs; the market is likely overestimating how much policy flexibility Beijing will actually concede.