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December 2016conference

WSJ | Chinese Executives Brace for U.S. Election Volatility

Nov 4, 2016 4:10 pm ET

Some Chinese business leaders are developing contingency plans, hedging against a potential fall in the dollar ahead of the U.S. presidential election.

“Entrepreneurs here are looking to prepare themselves,” said Zhang Yu, an assistant professor of management at the China Europe International Business School (CEIBS) in Shanghai.

“They expect some market volatility and changes in the exchange rate,” Mr. Yu said.

The yuan dropped to a six-year low against the dollar on Oct. 24 before recovering a week later.

“Due to the volatility around the U.S. election, currency hedging is an avenue that many firms explore,” said Edward Tse, chief executive of Gao Feng Advisory Co., a Shanghai-based consulting firm, in an email.

“I advise my clients on how to purchase raw materials and goods in the U.S.,” said Rong He, chief executive of Shanghai-based Century 3 Asia Pacific Inc., an engineering firm. “For purchases like these, a change in the exchange rate could have a material impact.”

Controllers and finance chiefs should make sure they’re “not caught by surprise next week” by a drop in the U.S. dollar, said Mark O’Toole, vice president of commodities and treasury solutions at OpenLink Financial LLC, a currency-risk firm.

“A significant number of our clients are looking at stress testing,” he said.

Trade with the U.S. represents a sizable proportion of revenue for many Chinese companies. Hence, executives are following the election closely, trying to forecast the full impact on their business.

Some firms said they hope a new U.S. president will not put up new trade barriers. Both Donald Trump and Hillary Clinton have campaigned on taking a tougher stance on trade relations with China, according to their websites.

“Restricting trade is never good for the economy,” said Jane Jie Sun, co-president of Ctrip.com International Ltd., a Chinese travel booking firm listed in the U.S. “China restricted trade for over 30 years, we were very poor,” she said. “The new U.S. president should have that mind,” Ms. Sun said.

A few executives contacted by CFO Journal said they prefer a Mr. Trump presidency because they can relate to the candidate’s entrepreneurial experience. The Republican nominee, they add, will be more predictable and pragmatic in his dealings with China than Mrs. Clinton.

“We, the Chinese businessmen, believe Trump’s approach will more practical,” said Mr. He. “He knows what problems entrepreneurs face.”

Some entrepreneurs said Mr. Trump may — as president — be more flexible than Mrs. Clinton.

“In the future, he won’t be as radical, as now during the campaign,” said Guanglian Pang, director of the China Petroleum & Chemical Industry Federation in Beijing, in an email. Mrs. Clinton would “contain China,” which could have a negative impact on the Chinese economy, he said.

Those favoring Mrs. Clinton cite her support of a global economy. “China during the past decades benefited hugely from globalization,” said Qian Min, executive director at Kuinno Management Consulting Co. Ltd. in Shanghai in an email.

“Trump might attempt to make American firms move operations back to the U.S. which could hurt the Chinese economy,” Mr. Min said.

Overall, remarks about China from the two campaigns are being taken with a pinch of salt, said Mr. Tse.

“Chinese… typically reserve judgment until after a new president is elected, as they have learned over the years that stances during campaigning don’t necessarily translate into action after the election,” he said.

The U.S. has run a trade deficit with China since at least 1985, based on data from the U.S. Census Bureau. Chinese companies are expected to invest between $20 billion to $30 billion in the U.S. this year, according to a report published by the Rhodium Group and the National Committee on U.S.-China Relations.


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Founder & CEO of Gao Feng Advisory Company, a global strategy and management consulting firm with roots in China. —learn more

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