Saturday, 14 January 2012

The Year Of The Yuan

China holds the largest population and biggest total area. China is second only to the United States as the worlds greatest superpower.
Many economists are predicting much stability for the Yuan this year as it has been for years, its at approximately 6 yuan to 1 American dollar. I however, disagree.
This year, 2012, is the year of the Yuan

There are a number of reasons I believe this.
China's economy is largely dependent on exports and despite exports dropping last year China's economy grew extravagantly, in fact its economy is predicted to grow at at rate of 9.5% this year and every year until 2015. China has many other industries other than the export one, you may be noticing an influx of cheap Chinese cars hitting the markets around the world. They are becoming increasingly popular and there is no chance of it slowing down.

The Chinese, as a communist nation has strong political stability. The government has not been questioned since dynasty days and it is become more and more attuned to the peoples needs, after all it is known as the Peoples Republic of China.

China's currency the Yuan was once quite competitive, during the 1970's only 1.50 yuan to 1 USD
It was in the 1980's when the Chinese government took steps to depreciate the Yuan to improve competitiveness of its imports and maintained this value until 2005. Since then it appreciated slightly sitting around 6.00 to the USD by the end of 2011.

Since 2005 Chins economy has grown by an average of 10% per year to the point where it is now a major world player.
The Chinese government is now faced with a situation they have never been put in before, where there economy is the 2nd strongest in the world.
To go further they need a currency which can be used globally and the Yuan at its rate of approximately 6.00 is not good enough.
Look at the euro or the USD for instance.
Another reason the Chinese need the value of the Yuan improved is because 90% of trades from china are done in Dollars. 
It is possible that this year the government will begin to reduce the restrictions surrounding the exchange of the Yuan to increase its value.

There is one other factor influencing the Chinese government to reduce the restrictions. The United States government.
Washington is creating more and more pressure for China to improve the value of the Yuan.

If the Chinese government does reduce the restrictions surrounding its currency then it is possible to expect to see a value increase the likes of which has never been seen before and it is quite likely that within a few years the Yuan will be worth more than the USD

Despite many economists views my forecast for china this year is great. This could certainly be a once in a lifetime investment.
Its likely to be a long term investment. But I predict that if you buy Yuan today you could see a return of up to 600% in just a few years.

This year is certainly shaping up to be the year of the Yuan.