Dealing with the yuan

June 21, 2010

A stronger yuan will have many side-effects, including in the world of deals. Chinese companies, like consumers, will have more money to play with and put firms across the globe in play. And for those buying into a Chinese company, things may get lot more expensive.

China is allowing more flexibility for the yuan, sending the currency soaring Monday to its highest level against the dollar since the landmark 2005 revaluation.

Most traders are maintaining forecasts for the yuan to rise a maximum 3 percent in 6 months and 5 to 6 percent in a year.

If this scenario plays out it will significantly boost China’s purchasing power, and weaken the ability of foreign companies to buy into the Chinese market. It would give added firepower to Chinese firms already on the hunt, especially as the country looks to satiate its hunger for natural resources.

Another side-effect: If your company is already generating significant sales in China a firmer yuan is a very good thing. Some of the winners are expected to be Caterpillar, BMW, Volkswagen, GM and General Electric.

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