Foreign exchange control prevents Renminbi (Chinese Yuan) to be freely exchanged to foreign currencies. For various reasons, many rich people in China want to hold foreign currencies. One way to get pass exchange control is through manufacturing and export.1 This explains a lot of Chinese business activities. For example, dumping is not a government policy, but individual decisions. One must not underestimate the amount of trade motivated by currency-movement, as opposed to profit-seeking.
Since the economic reform, China has produced a non-trivial number of mega-rich people (e.g. see Chinese Daily and Forbes). Businessmen benefit from booming business opportunities in a vast market. Some may benefit from having power, when people are willing to donate money to them for potential favour.
What could one do with too much money? There is a limit in how much one could spend. With President Xi's anti-corruption initiative, the mega-rich would be cautious in how they spend, in case they catch the wrong kind of attention. Money sitting in the safe doesn't bring much satisfaction. Money needs outlet.
Some find it attractive to store their wealth overseas. Money stored overseas are exposed to a different set of political risks. Overseas investments are exposed to a different set of market risks. So channelling money overseas is an attractive idea. There is only one problem: Renminbi cannot be exchanged to foreign currencies freely. To exchange Renminbi to foreign currencies, one needs to obtain government permission, and exchange through a formal channel. This could be a serious obstacle, especially for those who do not want to catch the government's attention to their wealth.
One way to exchange a large quantity of Renminbi to foreign currencies is through manufacturing and export: You run a factory, pay your workers in Renminbi, send the products to the West, and get paid in foreign currencies. The government is happy about it, because you create employment. You also improve the country's trade surplus. Surplus is always seen favourably upon.2 Not only is this a legitimate way to exchange Renminbi to foreign currencies, you may even get support from the government, because employment enhances stability.
As an exporter, you normally have to address basic questions such as: "How should you price your goods?" and "Are your goods competitive?" But since your primary goal is to exchange your Renminbi to foreign currencies, you don't mind losing money. In other words, your goal is not to maximise profit, but to maximise your foreign currencies on hand!
Exporting excessive production is certainly one of the reasons for the "Belt and Road Initiative", but that is not the only explanation to low prices in Chinese goods. Motivated by the need to by-pass the foreign exchange control, as opposed to profit generation, some of the Chinese goods are priced lowly in the West. Low prices are driven by the exporters' need to exchange money, not a dumping policy by the Chinese government.
It is difficult to know how much export has been motivated by commercial interest, in which profit-maximisation is the goal, and how much has been motivated by currency exchange. It is an open secret that many Chinese elites have channelled their assets to overseas. Moving money out of China keeps wealth out of political uncertainty, some believe. According to CBC News in 2014, "By some estimates, between $1 trillion and $4 trillion in untraced assets have left the country since 2000."3 Whether it is in US$, Canadian $ or Renminbi, moving trillions of them pass foreign exchange control is a non-trivial activity. Manufacturing and export is one of the most convenient way to do so. Therefore, one must not underestimate the amount of trade motivated by currency-movement, as opposed to profit-seeking.
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The author studies the above topic as a scholar. The discussion above is not politically motivated. Neither is any value judgements intended.
