William Cline and John Williamson describe their latest “estimates of fundamental equilibrium exchange rates” (pdf):
China is still judged undervalued by about 3 percent … Thus, whereas a year ago we estimated that the renminbi needed to rise 16 percent in real effective terms and 28.5 percent bilaterally against the dollar (in a general realignment to FEERs), the corresponding estimates now are 2.8 and 7.7 percent, respectively. It is entirely possible that future appreciation will bring the surplus [China's trade surplus] down to less than 3 percent of GDP. But China still has fast productivity growth in the tradable goods industries, which implies that a process of continuing appreciation is essential to maintain its current account balance at a reasonable level.
via Timothy Taylor.