Posted by: changholt | August 23, 2012

China’s currency pressure

I don’t know how many times each week people ask me about if the Chinese currency will get stronger or will it become weaker. Even politicians today are talking about how the Chinese Renmenbi is artificially propped up. There is no question that the Chinese government does not have a free floating currency, and most likely for years the Chinese government has made its currency artificially weak to help its international exports. However it’s 2012, we are now going to a world economic crisis. The Chinese currency is now facing a lot of pressure as its economic growth rate is slowing, it’s markets our shrinking (the European Union, the United States, Japan etc.) and the Chinese economy has had 6 straight quarters of slow growth.

Besides the fact that we always have to be careful when politicians (in an election year) start making outlandish statements, we as investors, business men and women, must look at this as an opportunity and a challenge. If we are doing business in China are we going to be susceptible to currency fluctuation, and if so, how do we respond. If you are buying or you are supplying in the middle kingdom, make sure your business is hedging against  this risk. Make sure you understand your company’s exposure to currency fluctuation. 

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