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Readers: Yuan Needs a Booster Shot

Not surprisingly, a plurality — 36 percent — of readers responding to EBN’s latest online poll believe a stronger yuan would make their businesses more competitive against China.

American manufacturers contend the Chinese yuan is undervalued by as much as 40 percent, according to MSNBC. This has cost millions of US manufacturing jobs by making Chinese goods cheaper in the United States and US products more expensive in China.

There isn’t a huge leap, however, to EBN readers who believe a stronger yuan would make their businesses less competitive (17 percent) or have no impact at all (20 percent). Most global businesses have operations in China, and many operate as Chinese companies. In these cases, a stronger yuan could eat into profits derived from the Asian market and increase labor and product costs.

Twenty-eight percent of EBN readers said they didn't know how a stronger yuan would affect their businesses.

The US is pressuring China to revalue its currency. China has allowed its currency’s value to increase by roughly 2.3 percent since announcing in June that it would introduce a more flexible exchange rate. Most of that increase has come in recent weeks after the Obama administration began taking a more hard-line approach and the US House passed tough legislation to impose economic sanctions on countries found to be manipulating their currencies, reports MSNBC.

Chinese officials say easing into revaluation is the best approach to take. Allowing their currency to rise too quickly would cost jobs and possibly destabilize the fast-growing Chinese economy.

3 comments on “Readers: Yuan Needs a Booster Shot

  1. tioluwa
    October 15, 2010

    I don't want to go into why the US is “damanding” or somewhat “dictating” to another country as to how to handle its affairs or why a US bill is being raised against China, however, i wonder, Who stands to gain or loose more from a raise in the value of China's currency.

    Ther are two sides to the story as Barbara has noted: those who see china as a competition would want the Yuan to rise, but those who run their business in china or with Chinese partners would rather it did not. So what is the right thing to do, if there is such a thing as right.

     

    Does china have to raise the value of the currency due to pressures from one country (a world power of course) and why exactly does the US want China to raise the value of their currency.

     

    Presently for my company, it will be to our disadvantage, but in the future, it will actually pay us.

     

     

  2. Ashu001
    October 15, 2010

    Dear Friends,

    I wrote about this very issue here

    http://www.ebnonline.com/messages.asp?piddl_msgthreadid=234653

    America cannot afford to hide behind the excuse that China's currency is        under-valued.We have to show courage and make the kind of structural changes that America's economy needs to develop and compete in today's cut-throat world.

    The Chinese for their part are more worried about following in Japan's footsteps,who after the Plaza accord were forced to revalue their currency upwards dramatically which led to Japan's lost decades.

    Best Regards

    Ashish.

  3. hmleng
    October 18, 2010

    Imaging these (I am not writing a thesis here, just some points that rush thru my mind):

    1. If China increases its yuan value by 40% from tonight immediately, there will be a huge tsunami effects to all the cost of goods sold to worldwide. And who are able to pay for that 40% increase of goods (might not be that direct)?  In shorter run, at least probably 1 year or could be longer, the rest of the whole will still have to suffer from the effect, and could be still needed to purchase from China.  Can each respective countries quickly manufactured its own products instead of continuing buying form China?  It will not be possible.  Not impossible, tough.  Besides who has the capital to re-route the whole supply chain backward?

    China – giving the same year of such increase of yuan, will boost its revenue, making tremendous and extreme push for inner development, making its internal domestic needs…in short this will help them to transform faster.  Positive view.

    On the other side, imagine if 40% increase by tonight, and wihin a month, everyone else is buying elsewhere besides, China, then there will be social problem in China…and guess what?  Who is going to take the hit?  Everyone…  Also demand and supply will cause shortages elsewhere…and then again pricing of products will surge.

     

    2. China has US bonds, etc….will it be fair to say that US will re-evalue the bonds, and debts to China by 40%?  Where will US get another 40% of the USD to pay back to China? (I don't know how they wrote their agreement..)

    3. Present economy situation – is not truly caused by China Yuan performance.  Slow growth was not to be blamed to China. 

    So, focus on the root of the problem, instead of trying to blame someone else for your own failures…

    4. Those giants now, those MNCs, all depends on the competitive cost of China to produce their goods.  If such happens, will they continue to be the giants?  Perhaps not. 

    5. 100 years ago….there was a time for someone; 50 years ago, it was someone else, and now…it is the turn for another one…

    What China is asking is give them time…else, I cannot imagine the chaotic situation the world will be.

    How the smart people came to the idea of 40% undervalue, etc…well…is something to be arguable by the academics, right?

    If we want to argue about the value of currencies like this approach, perhaps other matters should be considered into this way.  Well….I still cannot imagine the mess…if we really touch all the matters.

    (just crazy thoughts…as I read this original article.)

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