The Chinese Factor

by | Aug 15, 2003 | Archives

Warm fog swept from the South China Sea and hung like a humid blanket over a thin ribbon of asphalt that flowed, flat as a snake, through the jungle ahead. Low city rumbles rose through the green freshness and fought with the cacophony of birds.

Bowen Road runs through the mid-levels of Hong Kong and this was where I first lived and ran every day while working throughout Asia for nearly a decade. No one can spend time in this part of the world without respecting the energy and determination in commerce of the Chinese. So it is with no surprise that we see the United States owing China a fortune. Nor should we question whether the Chinese yuan is overvalued. There should not be a question if the yuan will revalue. The question is only when?

My old friend of many years Bill Bonner has written about this in his Daily Reckoning.

"Despite falling in value against every major currency in the world over 

the last three years, the dollar remains unchanged against the Chinese yuan.

"Given China's position as THE low-priced gee-gaw producer of the

global economy, the yuan should be one of the strongest currencies in

the world. Yet, the Chinese government - as an economic policy - keeps

the yuan pegged to the U.S. dollar. The yuan - for now - isn't allowed

to strengthen versus the dollar. It's a policy that helps China's

export economy and ensures billions of dollars end up in China's state

bank as currency reserves.

"The debasement strategy started in 1995. Remember the Asian Tiger

economies, Singapore, Thailand, Indonesia etc? They became wealthy by

exporting goods to the United States, following Japan's lead. To muscle in

on this trade with the United States, the Chinese lowered the value of the

yuan from 5 yuan to the dollar ($0.20) to 8.2 yuan to the dollar ($0.12).

"This instantly made Chinese exports 40% cheaper on the world market.

But under the agreement which allowed China to join the WTO, they must let

the yuan trade freely against the world's currencies. If the 46% rise in

the euro is any indication, the release of the yuan from its US dollar peg

will be very a very explosive event."

Since I lived in Hong Kong, I have seem the Japanese yen rise from 400 yen per dollar to 120. The Swiss franc and German mark have risen from four units per dollar. The yuan should and will rise too.

I made a fortune off the rise of the yen, German mark and Swiss franc and have been wondering how to cash in on the yaunís uptick. This is why I am pleased to see that Jyske Bank will launch a New China Fund next month that invests in Hong Kong and China shares.

You can learn full details about this fund at this Jyske Adobe Acrobat file (644k)

You can meet with Thomas Fischer and hear more about China and the yuan as well as Their Borrow Low-Deposit High strategies at our next course November 7-8-9 in Jefferson Landing Golf and Country Club in West Jefferson North Carolina. For details go to

No aspect of economics can affect your wealth as fast as currency moves, so before all those shirts, shoes, tables and other gadgets that come from China rise in cost, learn how to cash in on the rise of the yuan. I hope to see you in Jefferson Landing Golf and Country Club in West Jefferson North Carolina!

Until then, may all your currencies rise.