A central issue in the upcoming U.S.-China summit meeting will be the dollar-yuan exchange rate. Some market watchers expect the Chinese will allow the yuan to float higher, as the U.S. wishes. That naturally leads to questions about who will benefit as China’s currency rises.
The most straightforward play on a rising yuan would be Wisdom Tree Yuan ETF (CYB), a recommendation made by Joshua Brown of Fusion Analytics, whose financial blog also suggests Japan’s Hitachi Corp. (HIT) and U.S. cosmetics company Elizabeth Arden (RDEN). Both companies derive a significant portion of their revenue from China.
For more of an insider view of a China whose economy and currency are on the rise, AdvisorOne spoke with Chengfeng Zhou, CEO of Vancouver-based China Education Resources (CHNUF). Zhou agrees with the premise that a rising yuan would most of all benefit companies operating in China. “A company like ours will benefit simply because our revenue is generated in China,” he says. Those yuan notes will buy a lot more U.S. dollars when the currency is converted.
But, Zhou cautions, investors shouldn’t expect a meaningful appreciation of the yuan to happen overnight. “I don’t expect a dramatic increase because that’s not good for the Chinese economy.” Instead, expect the yuan to rise “in a stable way. That’s my personal opinion,” he adds.
“Also, the Chinese think the American economy shouldn’t always focus on the currency issue. They should cooperate in all kinds of ways.” The Chinese, in short, are looking for a strategic partnership. Look to the hundreds of Chinese CEOs accompanying President Hu Jintao on his trip to evince a desire on China’s part to find avenues of collaboration with U.S strategic partners. Zhou predicts there will be big, attention-getting contracts signed with U.S. companies.
Back on the mainland, analysts expect continued rapid growth in China in 2011. A recent report by emerging market analysts Mirae Asset says, “China is likely to remain one of the fastest-growing economies in 2011 with GDP expected to grow at more than 8%.” In China, where state-level macro-economic policy making holds particular sway, the Mirae report notes: “We expect to see more support for industry as well as subsidies for rural healthcare and education.”
And that policy is music to the ears of Zhou, whose company provides online learning, training courses and tools for teachers, students and education professionals in China. Over 1 million K-12 teachers are registered through the company’s Chinese web portal.
Under government guidelines, “all classes must be connected to the Internet,” Zhou says. And he expects the country’s priority focus on education to endure beyond 2011. In a country which still retains an official “one child” policy, Zhou notes, parents clamor to provide the utmost educational opportunities for their only child.
Read about David Malpass' views on President Hu's visit to the U.S. at AdvisorOne.com.