Should We Be Afraid of China’s ‘Value Chain’?

The devaluation of the yuan may have a tougher impact on global companies than previously imagined, as China’s drive to produce and consume higher-quality goods intensifies.

The shockwaves of the People’s Bank of China’s devaluation of its currency are still resonating around the world’s markets, but in the medium to long-term, it’s manufacturers who may hurt the most.

Western companies from Apple to Burberry will face a tough time finding out whether they can rely on their cachet in China even when their goods becoming more expensive.

China’s wealth has grown by leaps and bounds since the gradual opening up of its economy began in the 1980s. Its gross domestic product per capita in 2014 was $12,608.87, when adjusted for purchasing power, more than double what it had been just a decade before.

The Chinese leadership’s current five-year economic plan (2011 to 2015) is specifically aimed at moving the economy’s fast-paced growth away from the low-cost manufacturing it had become famous for, towards consumption. Tactics included greater investment in research and development, higher-end manufacturing, and services targeted at the country’s burgeoning middle class.

In May, the Made in China 2025 plan has been billed by Premier Li Keqiang as an attempt to “redouble our efforts to upgrade China from a manufacturer of quantity to one of quality.”

He pledged in May to “seek innovation-driven development, apply smart technology, strengthen foundations, pursue green development” – all of which is aimed at avoiding the “middle income trap”, where a country gets stuck at a certain level of economic development.

Worryingly for those countries which have done well out of exporting to China in recent years, the plan includes sourcing 70 percent of key components within China’s borders by 2025.


This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Craig Erlam

Craig Erlam

Senior Market Analyst, UK & EMEA at OANDA
Based in London, Craig Erlam joined OANDA in 2015 as a market analyst. With many years of experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while producing macroeconomic commentary. His views have been published in the Financial Times, Reuters, The Telegraph and the International Business Times, and he also appears as a regular guest commentator on the BBC, Bloomberg TV, FOX Business and SKY News. Craig holds a full membership to the Society of Technical Analysts and is recognised as a Certified Financial Technician by the International Federation of Technical Analysts.
Craig Erlam
Craig Erlam

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