China and the devaluation of the Yuan.

Kelly

Well-Known Member
Joined
May 10, 2007
Messages
183
Location
Houston, TX
I'm trying to grasp the concept of why China is keeping their Yuan devalued while buying a ton of Treasuries. It seems that by keeping the Yuan devalued, China keeps the momentum on its export industry going. But, doesn't this negatively affect China's purchasing power? I'm sure some of the members here can enlighten me on this subject. Also, are there two sides to this (as far as debating how this affects the U.S.)????? Thanks in advance!
 
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richrf

New Member
Joined
May 22, 2007
Messages
1
Hi,

China is less concerned with purchasing power than it is with building its economy. So it the poor people in the country cannot purchase overseas goods, it is no matter. The rich, on the other hand, have no problems with purchasing foreign goods - they have tons of money. In any case, more and more goods are now being produced internally, since European, U.S. and Japanese manufacturers are building plants in China, thereby insulating China, somewhat from the problems of a relatively weak Yuan compared to the dollar.

But China is getting a little concerned with their depreciating investments in Treasuries which is why it announced that it will be diversifying its worldwide holdings and are also investing more in U.S. assets, which is most exemplified by the recent Blackstone deal. One thing China has in droves is cheap labor, and they are going to leverage that asset for many years to come. China simply needs to keep their economy and exports growing - their top prioity. The only thing that can derail this strategy is the American "consumer" (yes, that is what Americans are especially good at), who are literally going broke with debt and at some point will have to stop consuming and learn to live a life without obese consumption of all types. In the meantime, America's willingness to take on dept in order to feed their appetite keeps China's economy growing at an enormous clip.



Rich
 
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