China's Yuan Getting Stronger

It was announced over the weekend by China's central bank that it would loosen the yuan's peg to the dollar and allow it to gradually strengthen. This decision will have a mixed reaction on the market. In one end, it is expected to add buying power to its exploding middle class. This is a win for American electronics industry, which can sell more computersi and iPods to a hungry market. However, at the same time, it puts a squeeze on U.S. retailers like Walmart because Chinese imports suddenly cost more. The impact is so mixed the same company that seems a winner could be impacted negatively. For example, 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 decision to allow the yuan to rise is mainly 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.

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.

Coal producers: Several U.S. coal companies could benefit. How much is uncertain. A stronger yuan would make that coal cheaper for China to import. China is the largest coal consumer in the world, though Australia dominates the Chinese market.

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.

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. But Walmart and other merchants with stores in China would also benefit because their goods would be more competitively priced there.

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.