Currency imbalances

I saw this in the comments section at Zero Hedge by JimBowie1958 and thought it was a very simple explanation of why the Chinese do not let their currancy float to a natural exchange rate.

Undervalued Yuan

The Yuan buys half what the USD buys inside China, so the Chicoms keeping the peg at around 7 Yuan to each USD is causing an imbalance that labor arbitrage can make alot of wealth on.

Say you take $1000 and convert it into 7000 Yuan. You then spend it on commodities so you can then make 700 widgets in China at a cost of 10 Yuan each. That 10 Yuan made $5 worth of widgets, and then you sell the widgets at cost and have $3500 to pocket. You take that $3500 and repeat the cycle making money hand over fist.

That is why Wallmart is so successful; they are playing the labor arbitrage game that the Chicoms make possible by undervaluing the Yuan by a 2:7 ratio.

The key is that the Chinese will sell you more stuff than your dollars are actually worth.  Japanese have done this for years.