Using adjusted foreign reserves as a proxy for exchange rate intervention by the government, we estimate China's actual exchange rate as a function of (1) the inflation differential, (2) the long-run movement of the real exchange rate, and (3) government intervention. After the estimating of the actual exchange rate, assuming no change in intervention and using the estimated coefficients, we estimate the long-run nominal exchange rate without government intervention. The estimation results indicate that the exchange rate of the RMB against the U.S. dollar is slightly undervalued and would have appreciated by 15-22% in 2003 compared with 1996, if there were no government intervention.