The US-China Strategic and Economic Dialog is underway.  The topics span many issues. One of the perennials is the yuan’s real value and the Chinese trade balance. Here are two figures.
First, one needs to recall the distinction between bilateral and multilateral real exchange rates.
Figure 1: Log real CNY/USD exchange rate (blue) and log real value of CNY (red), 3 month trailing moving average, both normalized to 2005=0; up is appreciation of the Chinese currency. Dashed line at 2005M07 (China depegs). Source: St. Louis Fed FREDII, IMF IFS, and author’s calculations.
The figure highlights that the CNY is appreciating in real terms (see this post for a discussion of the components due to nominal appreciation and due to inflation). The bilateral appreciation is actually more marked than the multilateral. I think this phenomenon partly reflects the fact that it was becoming increasingly difficult to maintain the previous policy configuration, and (as I observed here) faster appreciation was going to become increasingly harder to resist.
The correlation of the CNY value with Chinese trade balance (with the world) is shown in Figure 2.
Figure 2: Annualized 12 month trailing moving average Chinese trade balance (bn USD) (dark blue), and log real value of CNY (red); up is appreciation of the Chinese currency. Dashed line at 2005M07 (China depegs). Source: St. Louis Fed FREDII, IMF IFS, ADB ARIC, and author’s calculations. [updated 7:45am]
The trade balance has shrunk considerably. How much is due to exchange rate movements is the subject of an ongoing research project, although some results are reported here. The World Bank predicts the 2011 trade balance will be roughly the same in dollar terms, at around $250 billion (so shrinking as a share of GDP), shrinking to around $200 billion, before rising again in 2012 to around $230 billion.