Saturday, April 26, 2014

Yuan Dropping like a Stone

When it comes to currency manipulation, nobody beats the Chinese.  The Yuan has dropped in the last few weeks, and four percent for the year, with the obvious intention of reviving China's economy.  You can read the story in most of the financial press (See Fiona Law's story, Yuan Continues to Fall, and It Hasn't Hit Bottom, in yesterday's Wall Street Journal).

The Chinese are certainly adept at making their economy work, at the expense if everyone else letting their currency float along on market tides.  In the zero sum game of global economics, it makes sense to have lower priced labor.  

But, even those who didn't do so well in international finance, know the labor unrest in Adidas, Cooper Tire, and IBM are the consequence of squeezing labor between decreased purchasing power and higher expectations of a growing middle class.  In Mao's day, they could just cart off some of those strikers to the country where they could be retrained, beaten, or neutralized.  These days, that is getting harder to do.

This is actually good for the companies that use the cheap labor in China.  Strikes, harassment from the government, currency fluctuations, all put a dent in those profits.  Maybe they can bring some of that work back to their native countries - if they remember where those are.  

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