1 - China is a very important trading partner with the U.S. Its large population is a big market for U.S. goods and services and also provides an educated work force for joint ventures of U.S. & Chinese corporations. China has a trade surplus with the U.S. That means that their exports to the U.S. are greater than their imports from the U.S. Chinese exporters exchange their dollars for Yuan, their own currency. Another name for Chinese currency is Renminbi which means the peoples currency in Chinese. The surplus dollars would remain in Chinese banks, but since banks in China are not allowed to hold U.S. dollars, they have to sell them to their central bank for Yuan (Renminbi.) What does the central bank do with those dollars? They want the money to earn a return, so they look for a safe investment. The Chinese government invests in U.S. Treasury securities and other U.S. assets (denominated in $.) As of December 2018, China owned $1,123 billion of Treasury securities. Thats $1.123 trillion. (Japan owned $1,042 billion.) Interest rates are low on U.S. Treasury securities, but the default risk is also low, so U.S. government securities are very attractive to foreign individual investors, foreign companies and foreign governments who want a safe investment. The trade surplus should bid up the value of Chinas currency, but the value of the Yuan is controlled by the Chinese government. Its not completely flexible or simply determined by supply and demand in the foreign exchange markets. 1 - Is the Yuan (renminbi) currently overvalued or undervalued? Cite your source.