China will do what it considers to be in its own interest. That should surely be self-evident. What is not self-evident is how it does – and should – identify that self-interest. That is almost always more difficult than naive realists tend to suppose. This is true of its policy towards North Korea. It is just as true of its policy towards the exchange rate.

The Chinese government seems to believe its interest lies in maintaining a highly competitive real exchange rate for as long as possible. The evidence also suggests it can do so for a long time. But should it do so?