China has ostensibly kept its currency, the yuan, undervalued against the U.S. dollar in order to bolster its manufacturing industry as an export behemoth. Unfortunately, a Chinese study has found that most Chinese manufacturers might now be losing more from expensive imports than they gain from cheap exports.
However, when China International Capital Corporation (CICC) performed an analysis evaluating the effect of a hypothetical 5% increase in the value of the RMB against the dollar, by comparing decreases in revenue with the cost savings from cheaper imports, they found that most manufacturing sectors’ profitability actually increased.
Thus a yuan revaluation looks beneficial to Chinese manufacturing, based on data from a local government-related entity. If so, Beijing just lost a huge excuse not to revalue the Yuan.
Otherwise, the remaining reasons for China to keep the status quo on the yuan seem to be: 1) to avoid bowing to U.S. pressure; 2) to prop up employment, says Geo Graphics; and 3) to keep down it’s Asian neighbours and the rest of the world.
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