Is the yuan safe?

China’s economy – under pressure since the middle of 2015 – has made a remarkable recovery in recent weeks. Exports, after declining for eight consecutive months, rallied to rise11.5 percent in March.

China’s foreign exchange reserves also staged a comeback, rising a meagre 0.3 percent, but rising all the same. Yuan stabilised against the dollar in April, and even the Shanghai stock market posted small gains.

First-quarter gross domestic product (GDP) growth came in at 6.7 percent, right in the middle of the government’s target range of 6.5 to 7 percent.

Retail sales were up 10.5 percent in March. Even steel production is rising as the housing sector defies expectations of a massive shakeout. Everything seems to be going just fine for China’s economy.

But questions remain. These numbers are suspiciously good for an economy that was until recently thought to be plagued by inefficiency and overcapacity.

China’s steel and construction growth depend on massive government stimulus spending. March’s export performance was inflated by comparison with a particularly low number in 2015, while in real terms exports haven’t grown in five years. And earlier this year the director of China’s National Bureau of Statistics was put under investigation for corruption.

It’s not surprising that China’s economic statistics tell a kind of Dr Jekyll and Mr Hyde story. The official account is that the economy is humming along with one of the highest growth rates in the world.

Unofficial accounts suggest that it is growing very little, if at all, and that the government is massaging numbers on a vast scale to maintain the veneer of normality. The truth may be somewhere in between, but where? The best place to look may be the currency markets.

Show us the money

China holds the world’s largest stock of foreign currency reserves, slightly over $3.3 trillion as of March, 2016. China may have spent more than $600bn in reserves over the past two years, but even so $3.3 trillion is a lot of money.

March’s reserve figures are 17.2 percent off their June 2014 peak, but still well above the levels of the mid-2000s. At 30 percent of China’s GDP, they’re certainly in the “safe” zone by international standards.

The fact that all sectors in China want to move as much money out of China as they are legally allowed suggests that most people in China believe that the currency is overvalued.

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The problem isn’t the level of China’s reserves. It’s the direction. China has a closely managed currency that is only partially convertible in world markets. The yuan – or renminbi – is convertible on the current account for trade and tourism, and on the capital account for small investments of less than $50,000. Many other restrictions, small and large, remain in place to prevent capital flight. For example, Chinese tourists face daily withdrawal limits when traveling overseas.

Nonetheless, China is leaking money like a sieve. Investors want out – and not just investors. Traders, savers, tourists, and ordinary people are doing whatever they can to get money out of China.

The problem goes well beyond corrupt officials and rich individuals seeking to put their money beyond government control. Everyone is looking to get their cash out of yuan and into dollars.

Given that interest rates in the United States are essentially zero, this makes no sense unless people expect a dramatic fall in the value of yuan.

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The pressure of money leaving China is especially bizarre if, as the government says, the Chinese economy really is one of the fastest growing in the world. People simply don’t rush for the exits of an economy growing at more than 6 percent. With low inflation and high growth, money should be pouring into China, not out.

The road to devaluation

China’s foreign currency reserves ticked up a notch in March after several months of severe haemorrhaging, including worst-ever falls of $108bn in December and $99bn in January.

Perennial China skeptic Gordon Chang suggests that the March increase in reserves may have represented some statistical sleight of hand, but overall the markets seem stable. China has successfully muffled the sense of crisis that pervaded global China commentary in the closing days of the Year of the Goat.

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Now more than two months into the Year of the Monkey, with an exciting new Five-Year Plan in place, the Chinese economy seems to be back on track. Or is there just a tricky monkey behind the numbers, playing shell games with the world’s second largest economy?

China’s $3.2 trillion foreign exchange reserves are large but not inexhaustible. If China really is throwing money around to stabilise the exchange rate, it can maintain the yuan’s value only for so long before giving in.

The fact that all sectors in China want to move as much money out of China as they are legally allowed – and then some – suggests that most people in China believe that the currency is overvalued.

Slowing growth and falling prices seem to confirm this. It may be that what the Chinese economy needs most is a big, fat devaluation. Conventional political wisdom in China opts for stability as a badge of national pride. Economic reality suggests that China would benefit much more from devaluation.

China may opt to keep the yuan overvalued, at least until most of its political and economic elites have had the opportunity to move their savings overseas.

Many other developing countries have chosen economic stagnation rather than erode the spending power of their wealthiest citizens.

But a big devaluation – 20, 30, 40 percent – would do much more to restore growth in China. Of course, a big devaluation would make the US – and China’s competitors – furious. But it just might be what’s best for China.

Salvatore Babones is a comparative sociologist at the University of Sydney. He is a specialist in global economic structure.

The views expressed in this article are the author’s own and do not necessarily reflect Al Jazeera’s editorial policy.