How a Strengthening Yuan is Helping the Chinese Economy Restructure

As I have argued before, the South African manufacturing sector needs a strengthening rand in order to encourage real savings and investment into the sector, to reverse the consumer boom that is causing manufacturing to contract. Furthermore, a strengthening rand would force existing manufacturers to improve the quality of products they produce so foreigners would want to buy them.

Kobus van der Wath, MD of The Beijing Axis, this week explained how a strengthening yuan is benefiting the Chinese manufacturing sector.

The appreciating renminbi is actually helping China’s efforts in restructuring its economy. Beijing is sending a signal that, in the future, it wants to steer clear from unsustainable low-end sectors. This will force enterprises to improve their products, invest in technological upgrades and look for new ways to compete, such as through better after-sales service, warranties and quality. Domestic and overseas capital that enters China now will probably be invested in more high-end sectors like those in Chengdu, for example — as my letter last week mentioned — where the portion of revenue put into research and development is closing in on 3%.

So essentially, by preventing the yuan from strengthening as much as it should’ve before, the Chinese government incentivised the development of low-end, low quality goods manufacturers rather than high-end high quality products as the Swiss and Germans produce. It looks like these times are changing. Expect higher quality products from China, but to pay much higher prices for them.

The Manufacturing Circle should take note.