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CHINA PREPARES TO REVALUE

(Tuesday, June 21, 2005)

The growing appetite by Chinese institutions to acquire U.S. based businesses such as Maytag and Unocal suggests the desire to convert out of U.S. dollars before a revaluation. To maintain a large reserve of dollars prior to a revaluation would make them vulnerable to a serious financial loss.

It is better to acquire hard assets such as oil companies or even intellectual property in the form of trademarks and patents by buying global brand names and their operations.

The conversion out of dollars would also sponsor the acquisition of other assets and firms such as those based in Europe or supplies of oil from Russia. The former is continuing the latter occurred a few months ago.

There is another benefit to the Chinese for buying “branded” operations. These activities enable them to secure good global brand names from businesses that are now struggling due to intense price competition. The incursion into named products will allow the Chinese to migrate their relatively low priced operation into products that have different elasticities of demand.

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