Tuesday, October 12, 2010

Its not Chinese Yuan but weak US Dollar which is the problem----By Shan Saeed

Chinese Yuan is not the problem but the US dollar which is the hurting the confidence level of the global economy------By Shan Saeed

Lets share some facts and let you decide….Some people who cant even say china have now become gurus in the Chinese economy...

Chinese Yuan is not the problem, it is the weak US dollar which is hurting the global confidence level of the decision makers and investors...Why, the reasons are given below.....

Lets analyze the Chinese economy and its strategic actions

- Chinese are already consuming more.
- Chinese people are spending more on luxury good, investments and Real Estate
- Chinese is the largest auto sales market in the world right now
- Chinese economy is the driving the global economy otherwise we are all doomed
- Chinese is the 2nd largest consumer of the oil industry
- Chinese government is making strategic investment in oil with 60 deals in 19 countries from africa to asia to south america amounting to $117 billion deals.

I fully respect the Chinese leadership for their strategic insight...

Every country has the right to protect industry and her people. Its the right for chinese leadership to appreciate yuan when the global economy stabilizes. Yuan would appreciate to 4% this year.....since 19th June yuan has been appreciated 2% ...

The Chinese yuan has appreciated and I think will continue... the problem is that if the government let's it appreciate consistently there will be tons of hot money so I expect them to increase 2-3% then decrease 2-3% in order to stave off hot money and make it not worth it for speculators. Yuan appreciation would allow the Chinese people to buy more American exports. But what American exports? Everything is already made in China. America exported its manufacturing jobs years ago. Even if China's currency were to appreciate, production would just move to cheaper countries like Vietnam, not back to America.

According to my Harvard educated friend Shaun Rein---Expert on Chinese economy

Unless there are structural reforms to America's economy, a stronger renminbi will not lower the trade surplus in any meaningful way. However, net-net after a year or so expect a total of a 4-5% appreciation, especially once the Christmas ordering season is done and exports back to long-term stability. with the holiday season coming, the last thing American retailers like Wal-Mart (WMT) and Target (TGT) can afford is costlier products on their shelves. Costco (COST) is refusing to sell Coca-Cola (KO) products because Coke wants to charge too much. If customers are balking at price increases for sodas, what do you think will happen if iPhones (AAPL), Dell (DELL) computers and Mattel (MAT) toys--all made in China--rise in price?
Some analysts have observed that if Wal-Mart were a country it would be China's eighth-largest trading partner. Some 70% of the products sold in Wal-Mart have Chinese components. Billions of dollars of purchasing power would be taken from American consumers if the renminbi were to appreciate. The holidays would not be such a merry time.
With unemployment already at 10 %, American consumers are already stretching their shopping dollars farther than they have in a long time. The last thing they need is more expensive goods. Price increases would stop any thaw in consumer spending.

Analyze the American Economy.....

- Household debt to GDP is 122%..It would require $5-6 trillion to bring to 100% level of GDP..Deleveraging will be a huge drag on the economy creating a sub-par growth..
- US consumers are not spending in USA due to lack of confidence in the economy
- Fed is already debasing the US dollar due to QE..Government action cant boost the confidence of the American consumers....
- US dollar is deliberating kept weak to boost exports and support the industry
- Consumers have to save more to bolster the economy....
- Most of the corporations are sitting on Cash which is like a negative debt...

- The US should drop some export bans to China in the tech sector [there is a lot]. For Boeing, China is 2nd largest market outside US.

Shaun Rein adds on futher who is MD--China Market Research Group..

The problem is not a undervalued RMB/ Yuan but a weak USD and faltering confidence which is causing volatile swings in currency markets, oil barrel pricing, and gold. As nations rebalance their holdings towards euros, Australian dollars, Brazilian real and Japanese yen, the dollar continues to weaken. Even retail investors are jumping on the bandwagon. This flight will not end until the dollar reverses course or, at the very least, remains stable, and it's dangerous because it means countries will be less likely to buy Treasury bills and finance America's recovery.
A weaker dollar won't help create more exports. It will just make things more expensive for Americans. Foreign companies will produce elsewhere, because it is still cheaper to produce in low-cost labor markets like Vietnam.
Rather than wasting time pushing China to strengthen the yuan President Obama and his economic team should focus and figure out how to strengthen the dollar by paying down Chinese debts. A strong dollar, not a strong yuan, is what's important for America's future.

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