Why is the Chinese Yuan undervalued?

This was a strange phenomenon to me. Given the strong demand for Chinese goods, it was counter intuitive that the Chinese Yuan has such a Low value in the foreign market

Undervaluation

The Chinese Yuan has been pegged to the US Dollar since 1994 [1]. China maintains the peg buy purchasing US Dollars. China provides more CNY for each USD it receives. As a result, people owning USD have more purchasing power in China. We see this in effect through the strong demand for Chinese exports. Given a choice, a rational consumer would choose Chinese goods over US goods. However, because of the large trade surplus that this causes, China holds a large US currency reserve. 

The peg was officially removed in 2005. However, China continued to maintain a managed float. 

Impact

While undervaluations promote economic growth. This economic growth can be hindered by overinflation as suggested by [5]. I would probably need to do more research on this, as I believe with all economic behaviors, that the invisible hand brings everything to equilibrium. 

References

[1] Why Is the Chinese Yuan Pegged?

[2] How China Keeps the Yuan Undervalued

[3] The Impact of China Devaluing the Yuan in 2015

[4] The Chinese currency: how undervalued and how much does it matter?

[5] Is the Renminbi Undervalued or Overvalued?

[6] Do currency undervaluations affect the impact of inflation on growth?