Oct 01, 2012

This is going to be a quiet week as Chinese factories are closed from October 1-7 for their mid-autumn festival. This a holiday that celebrates the end of the fall harvest; typically mooncakes (pastries with red bean or lotus seed paste) are eaten; lanterns are also hung during this time.

The past month has been anything but quiet:

* In what is surely an election year slap to China’s face to make our current president look tough, the U.S. Trade Representative’s Office filed a new case with the World Trade Organization against Chinese subsidies for exports of automobiles and car parts. President Obama announced this during a campaign stop in Ohio – a heavily contested battleground state.

* At a Foxconn plant in Taiyuan, China, 2,000 workers rioted in the worker dorms. The riot was said to have been started between employees and security personnel. Foxconn manufactures products for Apple, HP and Dell, and employs over 1 million persons in China. The Taiyuan plant employs has little under 80,000 workers.

* China made the announcement early September that the Chinese Yuan can now be used to trade oil all over the world. This is huge because more money is exchanged for crude oil sales than any other commodity in the world, and the dollar has been the main instrument for oil trade.

* Russia, one of the world’s largest suppliers of crude oil, has agreed to sell oil to China and receive Yuan for payment.

* China and Germany agreed to conduct more trade with Euros and Yuan.

* The U.S. Federal Reserve announced “QE Infinity,” where they will print at least 40 billion dollars of new cash every month until the economy improves.

* The Yuan has been appreciating quickly against the dollar; it hit 6.284 today. It had dropped back to as low as 6.378 Yuan to the dollar last summer.

The WTO case and Foxconn riot were all over the news as was the Fed’s QE3 announcement, but the issues where the Yuan was taking the dollar out of international trade was not. The oil announcement was a big one, yet no one seems to be talking about it. It miffs me because these are all more cracks to the foundation of the dollar’s role as the reserve currency of the world.

Add more QE3 money printing + the Yuan replacing the dollar in international trade and you have a recipe for big time inflation. Or worse.

We need to pray that our government gets a handle on the problem soon…

Time to Start Planning Around the Chinese New Year Holiday

The Chinese New Year holiday runs from the 3rd week of January through the middle of February. Some factories shut down longer. This means that if an order doesn’t ship from China by the middle of January that it won’t go out until late February or early March, at the earliest. Now is the time to start planning for any inventory you might need the 1st quarter of 2013. For any shipments you want made before the shut down, it would be best to have the order placed by no later than November 1.

The Exchange Rate

Yuan to the dollar, as of today: 6.28 to 1
Rate when the Yuan was depegged from the dollar on June 19, 2010: 6.82 to 1
Change: .54 (7.9%)

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Previous Newsletters:

September: Remembering Nixon’s Visit to China
August: Who’s the Bad Guy Here?
July: We’re not in Kansas Anymore
June: Impressions from a Visit to China
May: The U.S. Gets What it Wants, But…
April: Of Beads and Streams
March: The New China Blog

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