The most accurate way to measure the pressure of the currency movements on China is not to take bilateral comparisons but to take the “effective" exchange rates calculated by the Bank for International Settlements (BIS). These are preferable to individual bilateral rates as they are a weighted average of all the different exchange rates affecting a currency.

The low point for the U.S. dollar's effective exchange rate this century was in July 2011. From then until January 2015, the latest BIS data, the dollar's effective exchange rate rose 19.4 percent. In contrast the Euro's rate fell by 3.8 percent and Japan's by 26.5 percent. However China's exchange rate rose 25.5 percent. Therefore while Japan and the Eurozone gained a competitive advantage, China's currency had risen not only against those currencies but even against a strong dollar.

These trends are even sharper when measured by the BIS's “real" effective exchange rates – i.e. taking into account inflation in different economies. From July 2011 to January 2015 the dollar's real effective exchange rate rose by 15.5 percent. In contrast the Euro fell by 8.1 percent and the yen fell by 29.1 percent. China's rate rose by 27.8 percent. So in real terms the devaluation of the Euro and yen against the RMB and the dollar was even greater than indicated by market exchange rates.

Given major exchange rate pressure on China it is a sign of the competitiveness of China's export sector that its performance has been rather strong – weakness in imports, not exports, has been the primary problem in meeting China's trade targets in the last period.

To show the trend in China's exports, taking December figures (to avoid difficulties of calculation caused by China's lunar New Year falling in different months in different years), and a three month average, to remove short term fluctuations, China's exports were up 8.5 percent year on year in December 2014. This is a strong performance in current weak global conditions – in particular in contrast with the U.S.'s 0.7 percent export growth.

But China's continued relatively strong export performance is being achieved by big long term shifts in its pattern. The effect of slow growth in developed economies, now worsened by devaluations in the Eurozone and Japan, means these markets account for a decreasing proportion of China's exports. Defining advanced economies as North America, Europe, Japan plus Australasia, the percentage of China's exports going to such economies fell from approximately 65 percent in 2000, to 49 percent by the end of 2011, to 44 percent by the end of 2014. This trend is shown in Figure 2.

China is being transformed from a supplier of exports to advanced economies to a trade dynamo for developing economies – whose trade grows much more rapidly than developed economies. This shows why China pays such attention to the BRICS economies, with initiatives such as the BRICS development bank, to the creation of the Asian Infrastructure Investment Bank, and to the New Silk Road/the Belt and Road initiatives. The sharp devaluation of the euro, as earlier of the yen, will strengthen this trend, and meeting China's 2015 target for a 6 percent expansion in trade will be heavily reliant on trends outside Europe and Japan.

Turning to the effect on capital movements of these currency shifts a distinction must be made between short term trends and the fundamental pattern of China's long term FDI.