Prices will out

In a move which could exacerbate tensions at a particularly sensitive time for world trade, exporters in the heart of factoryland, who believe the strength of the yuan is causing the world to turn its back on cheap Chinese goods, are taking matters into their own hands.

"Last year, our export business was difficult," said Chen Ji, the owner of New Urban Buttons. "We suffered a 30pc to 50pc fall. The exchange rate is restricting us, even though the difference in our prices has not been great. So we are offering our customers a lower exchange rate to the dollar, we offer 6.85 yuan to the dollar, or more, rather than the official rate of 6.75."

The yuan has appreciated by nearly 20pc against the dollar since the currency peg was loosened in 2005. Against the pound, the yuan has risen by nearly 30pc in the last six months, causing China\’s exports to the UK to plunge dramatically.

Even when you\’re a political dictatorship prices will out. You might think you can control them and indeed, you can to some extent, but you cannot control them completely. A lesson there for planners of all types and persuasions.

1 thought on “Prices will out”

  1. All the factory is doing is cutting costs in yuan, which is exactly what you’re meant to do with a fixed exchange rate.

    But I’m surprised you are now arguing that the Yuan is overvalued. Or are arguing that every single company in China should have its own floating currency? And if so how does that differ from cutting costs in yuan?

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