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The China Factor

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  • The China Factor

    Hi Guys

    Interesting article on the importance of China's economic development at this site:

    The last three paragraphs are quoted:
    At some point it will be in China’s best interest to decouple its currency from the US dollar (at the moment the renminbi’s exchange rate is fixed against the dollar). If China doesn’t decouple the renminbi, the currency will fall right along with the dollar, making China’s imports more and more expensive. China’s growth already requires vast raw materials imports, relative to its economy, so a stronger currency will benefit China in spite of losing some competitive advantage in the US. When China releases the renminbi, the Southeast Asian currencies and the yen will appreciate against the dollar since their main focus will be competitiveness in China, not in the US.

    Once that happens there will be less strategic advantage to China and Japan to support the US dollar and we could start to see the vast hoards of US Treasuries that those two counties hold come onto the market. This could really depress the dollar and send metal prices (in dollars) soaring.

    The bottom line is that for investors in the US, the US dollar remains the key. For investors outside the US the water is murkier and they should be more cautious about betting on China in the short term.
    "There's one way to find out if a man is honest-ask him. If he says 'yes,' you know he is a crook." Groucho Marx