for all you macro students out there.

righto. undervalued yuan, cheaper exports, imports become more expensive. that is, it becomes more expensive for the good people of China to purchase imports while the foreign devils enjoy cheaper Made in China goods.

that gives us our tendency for a trade surplus ($400 bn). surpluses mean a higher demand for the yuan in global currency markets, which puts upward pressure on the yuan. but since the Chinese government has placed a restrictive band on the value of their currency, the actual price of the yuan is kept below market price, hence the concept of being undervalued.

back to the imports-exports though, the key advantage for China is that the undervalued yuan keeps Chinese exports price competitive in the overseas market. consider a revaluation of the yuan to its actual market price - Chinese exports would be more expensive and consumers of Chinese exports would turn to other countries like Vietnam and such and such. God forbid the Chinese lose any customers.

the other point here is that imports in China are more expensive than they should be, thus hindering demand for imports and increasing demand for domestically produced goods competing in import industries. while this could encourage growth in these sectors, it probably shouldn't be overstated, seeing as China's main imports are raw materials (inelastic).

so we have the trade implication of an undervalued yuan, halfway there.

i am quite hungry so i shall post this and eat something before i jump right back into things.

vg knows i'm hungry.

do you?