China hopes to double the value of its currency to the US dollar once its economy moves from one driven by exports to a consumer driven one, according to a top US executive who has been in close contact with high public officials in China.
But, China does not want this change in currency value to be the result of American governmental pressure -- but to be a normal development from its own internal policy and planning decisions.
As China becomes more reliant on growth from its consumer sector, it will not be so dependent on a cheap currency to foster its exports, Chinese officials believe. The new Chinese 5-year plan will include subsidies that could stimulate more purchases of cars, household appliances and other products that are made in China and sold to the country's growing middle class.
Currency markets may have gotten wind of this policy shift, since the yuan is up 0.82% in the last month -- or an annualized gain of 9.8%.
In the last year overall, however, the Chinese Yuan has risen from about 6.84 CNY per $1.00 to 6.62 CNY, or a 3.2% move.
If the Yuan were to rise in value to 3.50 CNY to the dollar, that would be an increase of 89% over 10 years -- or an annual rate of 8.9%. Such an increase would rival stock market gains expected over the long run. It would also be an increase equal or better than the expected growth in China's annual GDP recently.
Of course, China's ability to shift from an export-driven one to a consumer driven one could be set back by high inflation which is driving up food prices and by the already unrealistically surging real estate prices.
There are a few ways for US investors to benefit from this long term plan to let the Yuan increase in relation to the dollar. They can buy a basket of Chinese stocks or an ETF like FXI, which is an index of 25 large Chinese companies like China Mobil, Petrochina and Baidu.
Or they can buy CYB, an ETF sponsored by Wisdom Tree Dreyfus which invests in securities meant to be an economic interest in money market securities denominated in the Chinese yuan.
I have also been informed that American visitors to China can deposit $50,000 a year in a Chinese bank account denominated in yuan, which will grow in value as the yuan rises.