All those dollar-based U.S. treasury bets they hold will be worth less in yuan termsChina’s banks still do limited business with the outside world, so the direct, immediate impact of a stronger yuan would be limited.Reuters An employee bundles yuan notes at a Chinese bank.Fu Lichun, an analyst at Southwest Securities, estimates that Industrial & Commercial Bank of China Ltd. would incur a foreign-exchange loss of as much as 200 million yuan if the yuan rose 1% against the dollar. By comparison, ICBC posted net profit of 129 billion yuan in 2009.
India could benefit much more if western importers start sourcing more from the country to reduce their risks. Uncertainty over the Chinese currency may encourage some of them to build deeper relationships with Indian suppliers as a longer term strategy, even if Indian exporters are less price competitive.More significantly, US and European manufacturing companies may now look at India as an alternate location for future plants. Further appreciation in the yuan would make low margin manufacturing and assembly operations in China less attractive. Initial signs of this are already visible with large electronic contract manufacturers coming up with plans to start operations in India. Even chip manufacturers, including Intel, have started looking at India favourably.
Interest rates are at its peak (experiencing a 6-year high), thus consumer spending has gone down considerably and in a way investments have also reduced. Else than exploring better export prospects
Group 9 – The Phoenix<br />
IMPACT ON INDIA????<br />Revaluation of Chinese Yuan<br />
A land founded on extraordinary customs and rituals.<br />Second largest economy in the world<br />A nation set to become the next super power in the world.<br /> FORTUNE COOKIE for the world.<br />Home to 19.5 % of the world’s population <br />CHINA<br />$ 1.5 trillion of the world’s exports<br />Largest Exporter in the world…….<br />
Winners And Losers From The Chinese Yuan Revaluation<br />6<br />Revaluation of Chinese Yuan<br />
Loser: U.S. retailers dependent on Chinese suppliers<br />Loser: Apple<br />Loser: U.S. consumers<br />Loser: Chinese domestic commodity producers<br />Winner: Chinese consumers<br />Winner: Waves of Chinese tourists<br />Winner: U.S. exporters, of course<br />Winner: Oil<br />Loser: China's Central Bank<br />7<br />Revaluation of Chinese Yuan<br />
lucrative<br />FDI<br />Investment in China<br /><ul><li> Risky
Less lucrative with yuan revaluation.</li></li></ul><li>IMPACT ON EXPORT-- IMPORT<br />
QUICK FACTS<br /> The Chinese government wish to keep the currency undervalued because:<br /><ul><li>A weaker exchange rate makes exports more competitive and increases demand for Chinese exports.
Chinese economic growth is dependent on exports, so the value of the currency plays a key role in boosting growth
China needs high growth. China’s economic growth is remarkable high by global standards.</li></li></ul><li>How is Indian Trade affected?<br />Trade impact:<br /><ul><li>The largest direct impact of an appreciating yuan will be on India’s merchandise trade with China.
textiles. </li></ul>Secondary industries (manufacture industry) and natural resources such as minerals are the key trade components between China and India.<br />
How is India’s Business affected?<br /><ul><li>Though India depends mostly on domestic sources for both demand for goods and services and for capital but derives significant momentum from the global economy. Therefore
A revaluation may break the monopolistic market that China has held till now over the US export market and open up trade opportunities for the rest of the world.Outsourcing AdvantageApart from IT and ITES, India's relatively cheap labour will be now exploited by the US firms.
As the Yuan appreciates, the NPV of investment in China will start decreasing, the money might be diverted to India as well.</li></li></ul><li>
EFFECT ON RUPEE<br />Rupee will Revalued<br />Rupee will devalued<br />Increased capital inflow leads high demand for rupee. <br />Increased Export more foreign earning. Yes<br />Increase in Inflation. Yes<br />High interest rates. <br />Political stability. No effect<br />Rupee will depreciate :<br />Increased Import. NE<br />High debt. Decrease.<br />
Decline in service industry output may overshadowed increase in industrial sector <br />Weakening of the Dollar would likely have resulted in an upward move of crude oil, steel, copper, iron ore and other industrial inputs and commodities. Although this is a positive for commodities, it is generally likely to be adverse for India, since we import a large share of these commodities.<br />
Growth of India’s GDP <br />Main hindrance in GDP growth is high Interest rate thus consumer spending (Low disposable income) has gone down considerably and in a way investments have also reduced.<br />Better export option and increased capital inflow helps in high consumer spending which is a positive sign for GDP growth.<br />
OTHER OBSERVATIOPN<br />Exchange rate become more volatile leads to favorable condition hedge Funds.<br />For MFI also it is favorable as more export boost entrepreneur.<br />Revalued in rupee help in merger and acquisition which in term help in global presence. Risk get diversified.<br />
Two Components of BOP<br />Current Account<br />Reflects nations NET INCOME<br />Capital Account<br />Reflects net change in national ownership of ASSETS.<br />
Current Account<br />Includes all imports and exports of goods and services.<br />Includes unilateral transfers of foreign aid.<br />If the debits exceed the credits, then a country is running a trade deficit.<br />If the credits exceed the debits, then a country is running a trade surplus.<br />Currently current account deficit is 3.4% of GDP<br />
Capital Account<br />If foreign ownership of domestic financial assets has increased more quickly than domestic ownership of foreign assets in a given year, then the domestic country has a capital account surplus. <br />On the other hand, if domestic ownership of foreign financial assets has increased more quickly than foreign ownership of domestic assets, then the domestic country has a capital account deficit.<br />
The trade between India and China soars closer to the US$60 billion target, India’s trade deficit with China is increasing. In 2009, India suffered a trade deficit of US$15.8 billion against China, while in 2008 the trade deficit was 11.17 billion,thus a stronger Yuan will help in eliminating this deficit and also increase the cost of Chinese imports of electrical machinery and other goods into India and benefit Indian manufactures<br />
"I would hope that China would address the problems in proper perspective and what they have announced (if) they mean it and they would adopt flexibility, (it) will help the world economy"<br />
"In our bilateral relationship, it is not going to have that much impact. But I do believe, as a major player in economic arena, China should take note of the concern of the world economy and have the flexible (currency)," he added.<br />
exporters in India can look forward for it as they expect to</li></ul> gain from a revalued Yuan.<br /><ul><li>Chinese exporters will no more be able to quote artificially </li></ul> low rates to the buyers.<br />Also, we can understand that:<br />…China's decision will help the global economy and that he is hopeful that China will follow the policy keeping in view the interest of the world economy.<br />Yet! We must remember that quotations by Chinese suppliers do not reflect the real value of the dollar, hurting Indian interests.<br />China’s undervalued exchange rate affects emerging market economies more than it does the United States and that may have persuaded New Delhi to support a broad-based effort aimed at currency rebalancing at the G20.<br />
2010 G-20 Toronto<br />“reserve currency countries have a special responsibility to ensure that their monetary policies do not lead to destabilising capital flows, which can put pressure on emerging markets.” <br />“If this (deficit reduction) is not to have a contractionary impact on the world economy, it must be offset by reducing current account surpluses elsewhere.” <br />This was aimed at China, which has unwarrantedly large surpluses.<br />