Manufacturing and China Volume 2

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Exclusive Newsletter B&A January 2016

China’s Devaluation of the Yuan – Part II

In our last newsletter, we looked at China’s devaluation of the yuan and the ramifications of that action on manufacturers at home and abroad. The devaluation is a strategic economic move by China which de-incentivizes trade with the rest of the world by making imports to China more expensive and exports out of China more competitive.

In continuation of that topic 

Energy expenses are also driving the total cost of ownership higher in China: this comparison of energy costs will inevitably intensify the ongoing struggle of communist bureaucracy that has held the price of natural gas low in China’s infrastructure. The continuing lack of private funding in China to develop natural gas fields will become a greater incentive of American On shoring decisions.

In short, China’s devaluation is rearranging the global landscape. 

We will continue to watch the statistics regarding On- shoring efforts and revisit further developments as they unfold. The Bank of International Settlements met in September for its quinquennial assessment (every 5 years) to examine the various baskets of currencies that comprise exchange rates for trading between nations. China’s yuan has finally been included in that basket. Now we will watch what happens globally as the percentage of the USD gets reduced in determining exchange rates. This will cause the evaporation of trillions of dollars of wealth across the globe. Read this article for more information: ‘The Yuan as a Global Currency’ – The Atlantic

Why bring this up in this article? The devaluation of China’s currency will change the whole picture regarding Onshoring in the very near future.

As we look at escalating wages we can easily see how inflation in China will push wages up as a result of the currency devaluation and will become an even greater driver for Onshoring decisions. We’ll take a closer look at China’s current manufacturing infrastructure in our next issue – until then, let us know what you think

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