Weijian Shan is the executive chair of PAG, an Asia-focused private equity firm
China’s currency, the renminbi, is undervalued. Everyday evidence abounds: residents of Hong Kong, whose currency is tightly pegged to the US dollar, flock across the border to Shenzhen for weekends of shopping, where prices are half those in Hong Kong.
The Economist’s Big Mac index shows that a McDonald’s Big Mac costs $6.01 in the US, yet only Rmb25.5 (about $3.60) in China, implying the renminbi is roughly 41 per cent undervalued. This light-hearted burger benchmark closely tracks the IMF’s more formal purchasing power parity estimate, which indicates that the renminbi is about 50 per cent undervalued against the dollar.
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