Car manufactures in China may face another hurdle as Yuan strengthens

Just as Toyota and Honda raised wages to appease their workforce, the Chinese government has announced that they will be allowing the currency more flexibility to grow. This signals an end to the Yuan’s two year peg to the US dollar.

“The looser currency stance comes on the back of all these moves to endorse the wage increases, it’s all part of moving to the consumer, more domestic-demand-driven economy,” said Jim O’Neill, Goldman Sachs Group chief global economist.

Even if companies are now under pressure to increase wage packets which will have an effect on profit margins, China is still an attractive option for foreign investors. This is because the Yuan has always been undervalued and its rise will help contain inflation thereby likely reducing workers wage demands.

The effect of rising wages and investments can be seen in western China where it is deterring workers from migrating to more developed regions like Guangdong in the south, allowing companies to maintain its workforce.

At the moment though, none of the workers at the Honda Lock factory, who ended the five day strike at the plant, are worried about the state of the economy affecting their salaries, stating that a deal and a contract has been signed.

Source

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Jacob Alexander

Jacob Mathew Alexander has been a motoring nut for as far as he can remember and has recently turned his passion into writing. After spending some time in the same industry in the UK, Jacob's work is from a slightly different perspective.

 

Comments

  • The black stig on Jun 21, 2010 at 4:25 pm

    They can produce shorter wheelbase cars to save cost!

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  • close shop lar.

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  • ummmm0 on Jun 21, 2010 at 5:17 pm

    yeah they are good in cutting cost and cutting corner just like the mobile phones.

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  • imbhotep on Jun 21, 2010 at 5:26 pm

    i think yuan move gradually and really small..if yuan see big movement, i can see when oil prices suddenly skyrocketing maybe US$200per barrel..for now maybe very small increase on yuan value..

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    • imbhotep on Jun 21, 2010 at 6:38 pm

      seems if unusual situation of hyperinflation such as skyrocketing oil prices, i think China will let Yuan appreciate futher..but in current situation, i think it will be not happen..
      seems if oil prices hike and China let Yuan apprecate…the case of inflation compensate with deflation when Yuan appreciate..the situation creates neutral effect and that’s good for China’s econmy..

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  • currency trader on Jun 21, 2010 at 5:51 pm

    Free float yes but it will be monitored closely by the govt.
    The range will be limited as China would want to remain competitive.
    On the other hand we would see more China co’s due to the stronger currency
    venturing outside and we will see more buying opportunities by China firms.
    In fact they would be a force to recond with unlike the Qatari’s / Saudi’s
    who invest blindly and and up losers !!

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  • CiViC_7900 on Jun 21, 2010 at 6:01 pm

    The Yuan was undervalued in the 1st place anyway

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  • victor lee on Jun 22, 2010 at 10:31 am

    8 years ago, yuan compare to MYR is 1/3 but now is just 1/2.

    OK lar, ask the Honda & Toyota close shop then come and buy from our BOLEHLAND :) hehe

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  • azrai on Jun 22, 2010 at 2:02 pm

    Come to malaysia easy ma..no riot..no mogok..but there’s a catch. NAP.

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  • squawk on Jun 23, 2010 at 12:02 pm

    High living cost in China aside, the Japanese are just too scaredy-cat to tell the American politicians to STFU. :-)

    China is content with the undervaluation. It’s the US politicians making noise. And the US companies who are in China are keeping quiet cuz now they have a stronger Yuan to convert back to more USD than before. Who’s laughing now?

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