The Yuan appreciating against the Dollar

[SmallCap]

with this rather symbolic gesture of allowing the yuan to appreciate against that dollar. I am wondering what the various implications of this move might be.

 

I know that this is supposed to increase the price of Chinese imports but what other implications are there for this move?

 

what companies will be affected and how?

 

SmallCap

[Ballinvarosig Investors]

I know that this is supposed to increase the price of Chinese imports but what other implications are there for this move?

Isn't that enough for you? ;D

 

According to the Chinese commerce minister, average profit margins for exporting firms are a tiny 1.8% - http://english.peopledaily.com.cn/90001/90778/90861/6936424.html

 

All I know is that I wouldn't want to have any exposure to a Chinese exporter at this time.

[SmallCap]

What companies stand a good chance to benefit from this?

[ragnarisapirate]

What companies stand a good chance to benefit from this?

 

For one, competitors of Chinese exporters, in the economies that said Chinese exporters export to.

[beerbaron]

 

Isn't that enough for you? ;D

According to the Chinese commerce minister, average profit margins for exporting firms are a tiny 1.8% - http://english.peopledaily.com.cn/90001/90778/90861/6936424.html

 

I deal with China's electronic factories on a day to day basis and they run at 30% gross margin. Probably 10% net margins.

 

I can tell you that distributors in the middle will get their margins squeezed for the next few months.

 

Beerbaron

[nomore]

I know that this is supposed to increase the price of Chinese imports but what other implications are there for this move?

Isn't that enough for you? ;D

 

According to the Chinese commerce minister, average profit margins for exporting firms are a tiny 1.8% - http://english.peopledaily.com.cn/90001/90778/90861/6936424.html

 

All I know is that I wouldn't want to have any exposure to a Chinese exporter at this time.

Perhaps we need to put the recent Foxconn suicides into consideration also. Factories like Foxconn had already increased wages by a massive 30%.

 

Toyota and Honda too had increased wages to combat the labour strikes. http://www.businessweek.com/news/2010-06-21/toyota-honda-boost-china-pay-yuan-may-slow-exports-update2-.html

 

Would this signal the end of the cheap labour in China? Some are calling it the new China economic reality: http://search.japantimes.co.jp/cgi-bin/ed20100622a1.html

 

Andy Xie had some interesting comments on this issue: http://whereiszemoola.blogspot.com/2010/06/impact-of-foxccon-suiciedes-on-china.html

 

Now if add a yuan appreciation to the wage increament in China's labour market, surely China export's would be more expensive. Who would this benefit?

 

And Andy Xie actually thinks that the Yuan appreciation is a bubble process. He wrote a piece back in April 2010. http://whereiszemoola.blogspot.com/2010/06/andy-xie-getting-yuan-right.html 

[biaggio]

I am thinking that China will want to buy more hard assets (energy,metals, lumbar etc)

[nomore]

I am thinking that China will want to buy more hard assets (energy,metals, lumbar etc)

That would be the logical thing to do. However, this was what was observed last year.

 

June 2009.

 

http://whereiszemoola.blogspot.com/2009/06/andy-xie-calls-it-speculative-inventory.html

 

• By Andy Xie
   
  (Caijing.com.cn) China's credit boom has increased bank lending by more than 6 trillion yuan since December. Many analysts think an economic boom will follow in the second half 2009. They will be disappointed. Much of this lending has not been used to support tangible projects but, instead, has been channeled into asset markets.
   
  Many boom forecasters think asset market speculation will lead to spending growth through the wealth effect. But creating a bubble to support an economy brings, at best, a few short-term benefits along with a lot of long-term pain. Moreover, some of this speculation is actually hurting China's economy by driving asset prices higher.
   
  The current surge in commodity prices, for example, is being fueled by China's demand for speculative inventory. Damage to the domestic economy is already significant. If lending doesn't cool soon, this speculative force will transfer even more Chinese cash overseas and trigger long-term stagflation.
   
   
  

 

Forward June 2010. The following news article from Reuters: http://in.reuters.com/article/idINIndia-49186220100610

 

• Imports of crude oil, refined fuel, copper, iron ore and rubber all slumped compared with April, giving little evidence of Chinese export strength feeding through into commodity demand.
  
• "Chinese copper firms reduced their copper buys in May after international copper prices fell, despite running rates at copper smelters remaining at high levels. This means they were using their inventories,"
  
• Exports of coke, used by steelmakers, almost doubled to more than 20 times the volume shipped a year ago, despite a 40 percent export tax, implying a lack of domestic demand. Imports of iron ore also fell by 6.2 percent from April.
  

 

Now the Baltic Dry Index which tracks the shipping of commodities have been plunging. IINM we have seen 18 days of losses! From a high of 4209 in May, the BDI has plunged to a close of 2601. (http://noir.bloomberg.com/apps/quote?ticker=bdiy&exch=IND&x=15&y=11 )

 

http://whereiszemoola.blogspot.com/2010/06/baltic-dry-index-continues-to-plunge.html

 

Of course, some had argued the possibility of the over supply of ships also helped the cause of the current plunge of the BDI but many are saying that China had slowed down their commodity purchases as the main reasoning for the BDI plunge.

 

So why is China slowing down their commodity purchase?

 

Is it because they had over loaded their inventory since last year? They need to recycle their inventory now.

 

And what about the Euro crisis? What's the implications? Euro is China's main exporting destination. Is the crisis in Euro causing concern for the Chinese?