One View: Don't Believe the Currency Hype — A Perspective Behind China's RMB Valuation (Part 2)

In the first installment of this series, I shared my initial notes from an interview with MetalMiner's Lisa Reisman about the direction of the RMB in the wake of China's willingness to "tolerate a gradual appreciation" in the currency. To recap her perspective, it's Lisa opinion -- developed over fifteen years of buying, selling and sourcing metals from global markets including Asia -- that China will continue to depress the RMB value going forward to protect its exports in order to save jobs. Consider her idea that "from a steel perspective, we're seeing cheap Chinese steel come out of the country. China's overall steel exports are increasing to the US and Europe."

It's unlikely that China will rock the civil unrest boat by jeopardizing employment for all of the workers producing metals, metals products and many other product categories for export. However, if on the off chance the currency did appreciate more than Lisa's high-range of 8-9% -- which she thinks is unlikely -- "US manufacturers would get excited," as such a move would increase "our share of exports given a strong RMB."

Under this scenario, Lisa hypothetically suggests: "Let's say the currency move is not lip-service. In this case, it will also help anyone that is manufacturing in China because import costs will decrease for raw materials. There is a corresponding balance. If you are manufacturing in China and the RMB appreciates, then your cost of doing business and sourcing raw materials will go down, but the cost of your exports also increases, thanks to the value-added labor costs that go up with currency appreciation."

Where do you think the RMB and the overall China export price is headed? Do you think the timing of China's wishy-washy announcement approaching the G20 summit is circumspect or is there really something to it? It feels to me like a classic case of putting on the MSG to improve the taste of something that really hasn't changed much at all.

Jason Busch

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