READING THE TEA LEAVES ON CHINA’S EXCHANGE RATE

Tom Orlik

How much will the yuan appreciate in the year ahead? The answer to that question will reverberate around the world’s financial markets. For Chinese firms, the pace of appreciation is a key determinant of profitability. Exporters, like many of the small factories that line the coast of Guangdong province, will suffer as a more expensive yuan eats into their competitive advantage. The bigger the appreciation, the bigger the problem. Importers, on the other hand, benefit as a stronger yuan reduces their costs. With giants like Sinopec (a big importer of crude oil) and Baosteel (a big importer of iron ore) among the firms that benefit from a rising yuan, appreciation is often mixed news for ...