New yuan creates winners and losers

WASHINGTON – China’s decision to let its currency rise in value adds buying power to its exploding middle class – a win for American electronics makers, which can sell more computers and iPods to a hungry market.

At the same time, it puts a squeeze on U.S. retailers like Walmart because Chinese imports suddenly cost more. And prices may not fall as fast for high-tech products made in China, like cell phones.

What sounds like an obscure economic decision – China’s move to loosen its currency, the yuan, from the U.S. dollar and let the open market have more of a say in its value – has real-world consequences around the world.

It comes in a global economy so intertwined that some of the same industries could suffer and benefit at the same time. American steel companies, for example, gain an edge because their Chinese competitors’ products become costlier. But China imports raw materials such as coal to make steel. Those costs will now drop for China.

Apple can sell more iPods and iPads to China, where customers will now be able to afford more. But Apple also depends on China to manufacture many of its products, so its production costs could rise.

China’s central bank said over the weekend that it would loosen the yuan’s peg to the dollar and allow it to gradually strengthen. The yuan rose to an exchange rate of about 6.8 to the dollar on Monday, from 6.83, where it had been kept for two years. Most other currencies already go up and down against the dollar on the open market.

The decision was largely political: China was seeking to defuse complaints that it deliberately keeps its exports artificially cheap to strengthen its hand against inflation and keep its economy humming.

Here are some winners and losers from this weekend’s decision:

WINNERS

BIG MACHINES: From construction machinery to cars to planes, U.S. manufacturers should benefit. Automakers could earn more profit from the cars they make and sell in China.

Caterpillar Inc.’s sales to China have jumped in recent months, fueled by the Chinese government’s stimulus efforts, which have given construction a boost. General Motors Co. and its Chinese partner, meanwhile, sold more than 1 million cars in China through May, making it the company’s largest market by sales. GM has a much larger presence in China than Ford Motor Co. or Chrysler Group LLC.

COAL PRODUCERS: Several U.S. coal companies could benefit. How much is uncertain. Consol Energy Inc., Alpha Natural Resources Inc., Massey Energy Co. and Patriot Coal Corp. all produce a type of coal used to make steel.

A stronger yuan would make that coal cheaper for China to import.

POOR COUNTRIES: As pay rises in China, the production of lower-value items such as toys and textiles has already begun to shift to countries like Indonesia, Pakistan and Vietnam, economists said. A stronger yuan could accelerate that trend.

And much is at stake. About one-third of the clothes sold in the U.S. are made in China, said Erik Autor, international trade counsel for the National Retail Federation. For shoes and toys, that figure is about 80 percent.

Personal computer companies could also shift their operations to Vietnam or other cheaper locations if the cost of manufacturing in China increases sharply, said George Shiffler, research director at Gartner Group.

FAST-FOOD RESTAURANTS: A rising yuan should help Yum Brands Inc., which owns Taco Bell, KFC and Pizza Hut. About 10 percent of its nearly 35,000 restaurants are in China. McDonald’s Corp., which has about 1,110 restaurants in China’s mainland, should also benefit.

LOSERS

RETAILERS: Eight of the 10 largest importers from China are retail companies, according to Panjiva, an international trade data service. They include well-known giants like Wal-Mart Stores Inc., Lowe’s Companies Inc., J.C. Penney Co. Inc. and Macy’s Inc.

A more expensive yuan should make Chinese-made goods sold in U.S. stores, particularly clothes, more expensive, analysts say.

CONSUMER ELECTRONICS: Components for cell phones, personal computers and other consumer electronics are largely manufactured in China. So as the yuan rises in value, those parts get more expensive.