This article is the first in a series of monthly blogs by the author.

U.S. Businesses involved in China trade for importing goods often have to pay for their goods or labor in China in order to complete their products for sale in the U.S. market.  Let’s face it, these businesses realize that the U.S. dollar does not go the same distance it used to in China or anywhere else for that matter.

Unfortunately, the U.S. does not make a lot of toasters or microwaves anymore so retailers and consumers are forced to buy Chinese-made goods. U.S. businesses often use trade financing to import goods.  We could buy Made in the USA products, but it is ultimately the consumer’s decision when they walk into Walmart and choose to buy the less expensive Chinese-made product over the U.S. brands.

Businesses are all in a wait-and-see mode as the Chinese currency has appreciated drastically over the last several years by more than 30%; however, the Chinese economy looks like it may be finding more of its equilibrium as the economy matures.  The last couple of years of growth in China’s GDP have shown a dip in their GDP.  Their GDP in the last two years has been between 7-8% which has been the lowest levels in 15 years. These figures are probably a couple percent too high as well do to adjustments that should be taken internally before China reports. India was also thought to be an industrial machine and it has shown the same decline over the last several years.

The People’s Bank of China (PBOC) has also taken measures to slow currency speculation by widening the Yuan currency fluctuation bank to a 2% band.  The PBOC as reported by the Wall Street Journal on March 17, 2014, stated, “The Central Bank of China is pretty satisfied with the efforts [using this new widened band] to punish speculators”.  “Over the last five years, PMF Bancorp’s clients importing and trade financing goods based on factoring invoices from China have seen a dramatic increase in cost of goods and labor in China, but it appears to be leveling off in the last year,” states Mr. Stephen Perl, CEO of 1st PMF Bancorp.

Therefore, the question “Is China becoming more expensive or less expensive for U.S. importers?” can be debated, but it should be clear now that the currency will probably find an equilibrium around this current level and there should not be any more large jumps in appreciation.  On the contrary, if the Chinese people, businesses, etc. become worried enough about their economy then we will start to see a flight of capital from China, which would depreciate the currency even further and would help make doing business in China cheaper again.  So, it is apparent that all parties have a vested interest in keeping the China Yuan stable at these levels.