How Would China be Impacted by US Downgrade

Thursday, July 28, 2011 12:30
Posted in category The Big Picture, Uncategorized
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With all the coverage right now of the US debt crisis negotiations, one of the things I keep coming back to is the “what if”, not unlike much of the commentary you will find on CNBC, CNN, etc. As far as I can tell though, the existing discussions that are occurring only involve the dynamics of a debt downgrade within the borders of the US.

But as many in China found out in 2008, there are threats that exist…

Going back a few years, the biggest impact to “China” (in my world) was that whereby Chinese banks were unwilling to accept a letter of credit for some (if not many) banks as they were unsure which banks were going to survive. A valid concern, and for many, an unplanned side effect.

Which leads me to ask, what would the impacts be of a downgrade to China, or those who are doing business in China? Is there a wider exposure that firms should be considering, planning for?

for me, I see a couple of areas where there could be impact.. but as I am not really sure what the impact would be, I’ll just throw them out without my guidance as to what would happen:

1) Increased costs of trade for those who trade using financial instruments to facilitate trade
2) RMB / USD conversion – could the RMB be catalyzed to go further than was planned
3) M&A transactions – could these be reduced, or could the Chinese transactions pick up?

… or is this all a none event at the end of the day for those between the borders?

Comments are encouraged..

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