I don’t normally post tracks to another post with very little commentary. But in this case I will. There is something going on here and all I will say is that if I were a to put a wager on it, the Chinese Yuan will revalue soon.
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5 Comments
hopefully not! as i enjoy being a tourist and buying cheap stuffs in China!
The comments are interesting, though.
Chen, thanks for dropping by and reminding us what matters: shopping!
It’s true, isn’t it? People fly to China and vacation and shop, while others buy fake goods to sell overseas.
What if the yuan moves up? How will it effect its economy and its people? Maybe companies will not see that it as a problem for their factories there, but I certainly think they will think something of it.
But, I do admit that I don’t see the big picture…
Clearly, an appreciation means that Chinese exports become less competitive and locally, there will be adjustments for the factories there, plus it has effects of dampening inflation, since local goods become relatively more expensive and so consumers buy less domestically. I also think that China is very wary of becoming a second Japan and the appreciation of the Yen got Japan into a heap of trouble, especially in terms of the deflation problem.
Yet, there is no denying that China has a price problem. In some respects, it is too cheap, yet a cafe latte at Starbucks costs 20 RMB which is not so far off what I pay for my coffee around the corner in West London.
The problem for China is imbalances because it has artificialities everywhere, still. It needs to make some things more expensive, but needs to hold some prices down.
So it needs to bring the Yuan into the real world, and I predict it will do so with a one-off increase in the range of 3-5% to get the US Congress off their backs. The Chief Economist of Goldman Sachs also thinks so.
http://www.businessweek.com/news/2010-03-04/china-yuan-one-off-gain-may-spur-stocks-goldman-says-update2-.html
Then, it needs to get serious in reforming many areas where things are relatively expensive e.g. education and healthcare.
Would you wish to be running China?
These guys have a heap on their plate, all right.
Not only that Chinese goods become less competitive *, but this would mean that USA exporters, for example, would become more competitive.
It also means that perhaps the USA and Europe raising their voices lately actually made a difference.
Of course stronger Yuan would give the Chinese a better capability to acquire companies abroad and influence non Chinese markets.
Lower inflation risk.
* assuming Chinese exporters would not get any money back via tax incentives. In this case they would maintain the same competitiveness.
(I didnt read the original article so pardon for any repeats).