Thursday, September 10, 2015

The Yuan-Mart


A lot of people are saying that the devaluation of the Yuan is good news for Wal-Mart. 

Certainly it will help the retail giant negotiate even lower prices for its future inventory. 

That definitely is good news for Wal-Mart’s customers around the world.

But what is good for Wal-Mart may not be good for the rest of the world when viewed from a different perspective.

Devaluing the Yuan is a great strategy for China in that it will help bring international currency into the country when it desperately needs it during this financial crisis. However China is already super competitive with a lot of the world’s consumer goods originating there.  The effect this will have on other countries remains to be seen.

India, Korea and other Asian countries all produce consumer goods as well. Will they have to lower the prices of their manufactured –for-export goods to remain competitive with the devalued products originating from China?

With some economies struggling to remove themselves from Third World Nation status through international trade, the devalued Yuan could mean that industrial crime may be on the rise. If they can no longer compete with the currency, they will need to find more “creative” ways to stay competitive.



Apart from relying on the notorious sweat shops in regions that produce cheap clothing in despicable conditions to maintain an edge, other industries may resort to additional extremes. Countries focusing on industries such as electronic consumer goods, automobiles and other methods of transportation, food products, and natural resources may need to find ways to cut costs to stay in the game.

One likely method is to lower quality. Another would be wage freezes, cuts, or layoffs to hire new workers for less. Increasing production to maximize existing equipment can often compromise human safety. Perhaps the worst method is to resort to the improper handling of waste, including toxic waste to avoid the cost of proper disposal.

As challenging as it is to get these countries to conform to our manufacturing ideology, if not our personal standards of decency, as this factory collapse in Bangladesh illustrates, the devaluation of the Yuan may have the most impact for human/workers rights and the protection of the environment in these countries.


Today the Yuan strengthened to 6.3936 per dollar as of 12:51 p.m. in New York. I for one, hope that the Chinese economy stabilizes sooner rather than later.


As currency fluctuated these past weeks, I have realized that my own smart money has been safe and secure, growing and giving steady returns…elsewhere.

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Sources:

Lynda at Sonoran Sun | Private Equity Investments 

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