According to Bloomberg, considering that the situation has likely worsened recently ''because the yuan has dropped 10 percent on a trade-weighted basis after inflation in the past five years", Federal Reserve Chairman Ben S. Bernanke urged recently China to allow the quasi- fixed exchange rate of its currency to gain at a faster pace to end "an effective subsidy'' for exporters. Bernanke said that " the effective subsidy that an undervalued currency provides for Chinese firms that focus on exporting'' is an "important distortion'' in China's economy.
However, when he delivered his speech, the Fed chairman changed the word "subsidy'' to "distortion''. This changing of words is a clear indication that many people have a hard time distinguishing between the economic and the legal definitions of a subsidy, a fact which leads to an excessive use of the term “subsidy” to make it fit any case.
Under the SCM, a practice is a potentially challengeable subsidy if it simultaneously satisfies three distinct criteria: it must entail a governmental "financial contribution”, it must be "specific", and it must confer a "benefit" on its recipient. If it is contingent in law or de facto upon export performance, it is then prohibited and deemed specific automatically. Is the yuan undervaluation an "effective subsidy for exporters" (read "de facto export subsidy") in this legal sense? In other words, does the undervalued yuan entails a governental financial contribution providing a benefit to certain chinese firms contingent de facto upon their export performance? In such a case the answer would be affirmative without the need to prove specificity which is deemed to exist in such a scenario. However, although the meaning of "contingent de facto upon export performance" seems obvious in the context of the yuan undervaluation, what is the meaning to be given to financial contribution and benefit in such a context?