Daily Archives: July 2, 2010

Are Chinese Christians Buying Themselves a New Vacation Home on the Aegean Sea?

While many people may still think that the majority of Chinese are Buddhist or Taoist, a large number of Chinese actually follow the “minority” religions of Islam or Christianity — and the number of people who follow the minority religions are significant as estimates put the number of followers of Islam at 20 Million to 30 Million and the number of followers of Christianity at 40 Million to 55 Million, or 3% to 4% of the population.

This is a very significant number, as it’s roughly four times the number of orthodox Christians in Greece (which account for roughly 97% of the population) — a country that China is in the process of buying piece by piece. According to this recent article in the Washington Post on how Greece is tapping China’s deep pockets to help rebuild it’s economy. Greece, which had to turn to the European Union and the IMF in April for a 140 Billion payout to stay afloat, is taking on the powerful unions in an effort to ensure that the Chinese can introduce dramatic changes as they invest in major projects, such as the 700 Million transformation of the Mediterranean port of Piraeus that will create a modern gateway that links Chinese factories with consumers across Europe and North Africa.

Greece is courting China for a bevy of other projects, including a sprawling new distribution centre in the industrial wastelands west of Athens, a monorail line, five-star hotels and a new maritime theme park — everything you’d want in a vacation home — or a wedding location! (The island of Santorini has started selling itself as the perfect location for “Big Fat Mandarin Weddings”.) And China is buying.

This will obviously improve port productivity and give those who are shipping into Europe more options, but is there a downside from the Chinese turning Greece into their vacation home?

China (Kinda) Loosens Controls on the Yuan

Editor’s Note: Today’s post is from Dick Locke, Sourcing Innovation’s resident expert on International Sourcing and Procurement. (His previous guest posts are still archived.)

China announced last week that they will no longer peg the yuan to the US dollar. Instead, they are going to control the currency against a market basket of the currencies of countries they trade with. This is what Singapore did a decade or two ago.

This is at best a stop gap measure. It complicates the task of the Chinese government in setting exchange rates. Just because it’s more complex, it increases the credibility of those who call the Chinese currency controls “manipulation”.

China really should just let the currency float. Apparently internal pressures from their business community are stopping them from doing that.

So what does this mean for people sourcing in China? It’s probable that the Chinese currency will get stronger against US dollar. But even that isn’t certain. They tied the value of the yuan partially to the value of the euro. If the euro were due to collapse due to fiscal problems in its “club med” (Spain, Italy, Greece) countries, the yuan could actually weaken against the dollar.

So, what happens to your costs if the yuan were to appreciate, say 10%? Would the price for your Chinese product go up 10%? Probably not. The answer depends on two things. First, what fraction of the manufacturing cost of the product is Chinese? You do know the answer to that question, don’t you? You should.

In assembled products, it’s rarely 100%, because a lot of the components are imported.

Second, how competitive is the market for the product you are buying? If there’s a lot of competition, sellers can’t always pass on cost increases to buyers.

I also expect change will be slow. It’s more likely that the recent labor militancy will have a larger and more immediate effect, particularly on the price of higher-technology products. More on that in my next post.

Thanks, Dick.

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