On Aug 14, 2007, at 12:33 PM, Rakesh Bhandari wrote:
> Yet profit from contractors may well be mostly repatriated.
MNCs may need yuan to pay contractors, but they don't accumulate them as a result.
> So it's
> not clear to me that an appreciated yuan would necessarily be a blow
> to US corporate profitability.
It would raise costs in an environment where wages and other costs are already rising. Chinese inflation is brisk and getting brisker. It wouldn't be a body blow, of course, but it would encourage sourcing elsewhere.
> On the contrary, yuan reserves abroad
> would now be worth more in dollars.
What yuan reserves? The currency isn't freely convertible. I suspect those "trapped" balances are pretty insignificant.
> All this assumes that Paulson is
> not talking smack. I don't think an appreciated yuan would save small
> American home-based business or declining industries. So if Paulson
> is serious and is not working on behalf of declining or small
> business, then the question is in whose interest an appreciated yuan
> would be. Not most Americans as consumers or mortgage holders
> obviously.
Like I said, I doubt Paulson is serious, except to the extent that he wants to defuse pressures from Congress.
Doug