Tracking the Yuan

One of the most important macro issues to the toy industry is the value of the Chinese Yuan. The higher it goes in value compared to the US dollar, the more toys are going to cost. 

I did a post to this blog on January 23, 2009 entitled "You, me and the Chinese Yuan" in which I talked about Timothy Geithner, now Treasury Secretary, who accused the Chinese of “manipulating their currency,” in other words of artificially keeping the Yuan’s value low in comparison to the dollar. By doing so, they can continue to maintain their position as the world’s bargain basement for manufacturing.

At that time, I wrote that the Chinese would punch back and they did. We are now into a little contra temps with them over the currency issue. In an editorial in the January 28, 2009 New York Times entitled “China and US in Currency Spat,” writers John Foley and Jeffrey Goldfarb took both sides to task. What caught my eye, however, was the following statement: 

Ultimately a revaluation of the Yuan is likely, maybe as much as 40 percent, by some estimates. It is pie in the sky, of course, to think China will rush into such a shift when growth already lags 8 percent. A rapid change would harm both sides. But in the long run, a stronger currency would help turn China from the world’s sweatshop into a stable, consumption-led economy and take away a big driver of United States consumers’ profligacy. Both sides should work constructively to achieve that end, and leave the rhetorical swordplay alone.

We don’t know what the authors mean by long run but whenever it comes, 40% is a pretty big increase. What will this mean for toy production in China and does the anticipation of such an increase make it even more important to consider alternative sources of supply   At some point, the cost of manufacturing plus the time and more importantly the risk of doing so is going to become untenable. When that happens where will production move? We need to be thinking about that now.