China % of world consumption & seaborne production 2010E
Source: JP MorganAllowing the yuan to resume appreciation may help China control inflation amid record lending growth and surging property prices. The exchange rate has been kept at about 6.83 per dollar since July 2008 to help Chinese exporters wither the global recession.
Even a rise of 3 percent in the value of the yuan, the range of increase discussed, to around 6.60 to the dollar from last year's average, would have a profound effect on China's $244 billion commodity bill. Last year the country spent around 607 billion yuan ($88.97 billion) on importing oil, 343 billion yuan ($50.28 billion) on iron ore and 206 billion yuan ($30.20 billion) on copper. An increase of 3 percent in the yuan would have saved the nation some 56 billion yuan ($8.21 billion) on its commodity purchases, or enough to buy more than 1 million tonnes of copper.
The last time China raised exchange rates back in 2005, commodities saw a steady rally for more than a year after the revaluation. At that time copper prices doubled to a then record high of $8,800 a tonne in 2006, chipping around half a million tonnes off copper consumption annually.
Source: BloombergThe above chart shows the CRB Index, which tracks 19 commodities, the yuan exchange rate in the spot market and 12-month non-deliverable forwards for the currency. The CRB index surged about 10 percent in the first six weeks after China ended its decade-long peg of about 8.3 per dollar in July 2005, and that could be repeated.
Ahmedabad Time
2 comments:
This report surely gives an insight, as and when the currencies are appreciated in terms of value, it reaps out more benefits than hindrances; however:
a) How did a country like China were able to log surplus in its Trade B.O.P.?
Answer: China would prefer becoming a net exporter instead of reducing its import cost, which may explain that China has Trade Surplus; and do you who is their most valued customer is?...YES..its America.
The chinese goods are flooded in the US markets mainly cause of its cheap value, moreover if they happen to increase their rates, might dampen the exporters value which in turn would affect the wholesalers. FOR EG: Basically, if 1 Dollar buys 7 Yuans, and a exporter sells a Chinese Shirt for 10 dollars – he pockets 70 yuans. But if one Dollar was worth only 5 Yuans, the exporter would only be able to pocket 50 yuans. The standard of living of the communist borne country are cheap relatively. All they have to do is keep feeding the capitalist. FYI US Imports From China 2008: $340 billion 2009: $301 billion. Furthermore, USA is a huge market, however if US will cut in its consumption by 2%-3% the chinese exports would fall by 20%-30%, YUP a 10-1 ratio, in a competitive world.
b) Why would Chinese swear on keeping the Dollar value at higher rates?
Answer: Being the largest US treasury holders, the interest rates remmitted allows China to fancy on early christmas. It started to buy US Treasuries because as most of the commodities and exports are dollar-denominated. Why would it stop to buy, infact it would raise it demand on US Treas. so that interest rates are high. But if US Dollar is to go bust, you could only imagine what would happen to the worlds' second biggest economy.
Regards: Kiran V. Menon
This report surely gives an insight, as and when the currencies are appreciated in terms of value, it reaps out more benefits than hindrances; however:
a) How did a country like China were able to log surplus in its Trade B.O.P.?
Answer: China would prefer becoming a net exporter instead of reducing its import cost, which may explain that China has Trade Surplus; and do you who is their most valued customer is?...YES..its America.
The chinese goods are flooded in the US markets mainly cause of its cheap value, moreover if they happen to increase their rates, might dampen the exporters value which in turn would affect the wholesalers. FOR EG: Basically, if 1 Dollar buys 7 Yuans, and a exporter sells a Chinese Shirt for 10 dollars – he pockets 70 yuans. But if one Dollar was worth only 5 Yuans, the exporter would only be able to pocket 50 yuans. The standard of living of the communist borne country are cheap relatively. All they have to do is keep feeding the capitalist. FYI US Imports From China 2008: $340 billion 2009: $301 billion. Furthermore, USA is a huge market, however if US will cut in its consumption by 2%-3% the chinese exports would fall by 20%-30%, YUP a 10-1 ratio, in a competitive world.
b) Why would Chinese swear on keeping the Dollar value at higher rates?
Answer: Being the largest US treasury holders, the interest rates remmitted allows China to fancy on early christmas. It started to buy US Treasuries because as most of the commodities and exports are dollar-denominated. Why would it stop to buy, infact it would raise it demand on US Treas. so that interest rates are high. But if US Dollar is to go bust, you could only imagine what would happen to the worlds' second biggest economy.
Regards: Kiran V. Menon
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