Julius, thanks for posting a nice article again. While there is much
pressure on the Gov to depreciate the Yuan, I believe that they won't
do it, for the following reasons:
1) As mentioned before, as soon as yuan gets depreciated, Asian
currencies will be all tumble. Worst of all, China
wouldn't be able to catch up the race downward. Therefore, China will
rather continue to peg the yuan at the current rate rather than depreciate its value. I believe
that Rubin's support to China's tough stand has its
material dimensions, that is, the US will support China by maintaining trade figures.
2) Currency depreciation could cause threat to stability which the
gov tries to protect at all costs. I called friends during the
Spring Festival and learned that layoffs are pretty bad at this
point in time. SOE's don't have enough contracts. The need for reforming SOE's is urgent. In this situation, any currency depreciation may hang the reform process and waste previous effort.
3) Currency depreciation may especially affect the "out of plan" (the private sector) economy which has a greater reliance on Western tech. And, believe it or not, China imports much of its grain from the US and Canada... All these are not in favor of the government.
Given all these reasons and more, I believe that depreciation won't happen. However, here is one thing that bothers me somewhat: I read from People's Daily some time ago that oil products are over supplied. The government tended to put restriction on production of refineries. I hope this would not affect BYH much, because BYH does have many dimensions. |
