Be Careful What You Wish For: China's Currency is Finally Rising - and Global Companies Are Scrambing To Adjust

Finally. After years of pounding bully pulpits and demanding that China 'do it's share' by letting its currency appreciate against the dollar, the yuan has started to do just that. Having gotten what they wanted, American and European businesses are not so sure they like the result.

The problem is two-fold: western companies became addicted to inexpensive Chinese production prices and built their global supply chains accordingly. At the same time, western executives and policy makers convinced themselves that if the yuan rose, their own products would become cheaper by comparison and do better in global markets. Except that life is always a bit more complicated than we would like to believe.

Companies are having to rethink supplier networks, recalculate financial returns based on a moribund yuan and reimagine the entire notion of offshoring production. That takes time, costs money and doesnt always work smoothly the first - or second - time. In addition, the Chinese are not exactly passive spectators in this game and are using the changes to strengthen their own position wherever possible.

As Chana Schoenburger and Dinny McMahon report in the Wall Street Journal, the ultimate beneficiaries may be other developing countries like Vietnam and Bangladesh. Change is good - just not always for you. JL:

"The strengthening yuan is a bane for some U.S. companies doing business with China—but a boon for others. The yuan's appreciation against the dollar is bad news for American companies that manufacture goods in China for export, and for U.S. businesses that rely on Chinese suppliers. That's leading executives of some of those companies to look at other countries that don't present the same problems.

But for U.S. companies with operations in China that sell their products on the Chinese market, a strong yuan is a plus. The same goes for companies that export to China. And for many companies, the ability to use yuan instead of dollars to trade with China may offer some relief from the effects of the Chinese currency's appreciation.

INSERT THE REST OF THE QUOTED ARTICLE TO APPEAR AFTER "READ MORE..." JUMP