China shows who's really the boss now

[idlisambar]

China's currency revaluation, which happened last Thursday, was an event of significance. While over-shadowed by London's second terrorist incident in a fortnight, Beijing's move was a landmark in economic history.

How can this be so? After all, China's government raised the value of the yuan by a mere 2 per cent - from 8.3 to 8.1 - against the dollar. And crucial details about the new regime - the composition of the "currency basket" to which the yuan will now be linked, for instance - remain unknown.

Also, a new "trading band" means Beijing would be able to limit movements in China's currency to only 0.3 per cent per day.

But all this misses the bigger picture. The important point is that China's rigid dollar "peg", in place for more than a decade, is now gone. In recent years, US authorities have watched in horror as the value of the yuan has been artificially held down against the dollar, boosting China's already super-competitive exports even more.

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http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2005/07/24/ccliam24.xml&menuId=242&sSheet=/money/2005/07/24/ixcoms.html

[whistle]

1. So Wal-Mart's profits are about to be squeezed dramtically....

...along with the profits of every American toy maker and souvenir retailer and clothing retailer and shoe retailer, and on and on and on. Is India capable of absorbing the demand for low priced manufactured goods from the U.S. now at cheaper prices than what we buy from China? Let's see what kind of product horrors American marketeers are going to force on U.S. consumers moving forward from here.

[Old and In the Way]

2. Free floatingthe Yuan would be bad news for both the US and China

I've heard the Yuan is undervalued by as much as 30%. I imagine that none of the major Chinese holders of US Treasuries would want to see their portfolia worth 30% less overnite. The short term shock to our economy would also significant.

This does set the table for a gradual equalizing in the currencies which would be a good thing, I think.

[idlisambar]

3. It's a sacrifice they are willing to make

The Chinese leadership understood from the beginning that their dollar denominated assets would lose a lot of their value, but they are more than willing to bear this cost since it serves their primary goal of building industrial capacity.

[Old and In the Way]

5. I'm sure the leadership is OK with it, but I think the people bankrolling

Chinese trade might have a problbem with it. At some point, US trade will be less important as the internal domestic market becomes more significant....far better, from their perspective, to move the valuation up gradually.

[Oversea Visitor]

4. Complex yet simple

1) Yuan undervalue YES. Help prevent dollars from weakening
Yuan is grossly undervalue and this slow unpegging will result in the weakening of the value of the dollars.

2) Malaysia also unpegging slowly like China also a 2% adjustment.
Malaysia is listed as the one of the top 20 exporter holding position 18.

Although a weakening dollars will make Americans Products cheaper it will also raise the cost of import. There is going to be major price hike in US. With weak economical policies in the US, impact on the people wealth is tremendous.

A) Has real wages increase? From what I see of the policies answer is no.
B) Possible slow down of domestic economy due to reduce disposal income of American families. Major pain ahead for the American people
C) Injecting Goverments spending to help boost Domestic economy....
aaah I dont see this the reverse maybe but I dont see this.

China moves to unpeg is to put pressure on US. Can the Chimp tackle the move with the right policies to help boost local economy. Frankly
he dont have a friggin clue on this.

Possible interest hike in the future to attract cash to the system.
Will this help.... well too many Americans living on credit so wont help much. Just help to cut spending which will offset inflow of cash into system. Net result American people less purchasing power.