China ETFs, Rising Wages and the Trade Deficit | ETF Trends

China’s currency is undervalued by as much as 40%, making the country’s exports rock-bottom cheap. But wages are rising along with the cost of doing business in the country. What happens next could have implications for exchange traded funds (ETFs), global economies and consumers the world over.

Though the hourly wage in China is still rather low, economists estimate that the wage increase could potentially drive up prices of a wide range of consumer goods, reports David Barboza for The New York Times. The two-decade-long shift to manufacturing in China has helped international companies lower costs and prices. [China ETFs: Foreign Investors Look at Long-Term Prospects.]

A few examples: Foxconn Technology, one of the world’s largest contract electronics manufacturers, has vowed to increase the monthly average wage to around $300 for its 800,000 workers in China in an attempt to improve the lives of its workers. Japanese automaker Honda has also agreed to provide about 1,900 workers in southern China a raise to the new monthly average of around $300. Manufacturers are also raising salaries so that they may attract new workers and hold on to the new recruits.

Beijing has raised its city’s minimum monthly wage by 20% to about $140, and many other cities are likely to follow. Analysts opine that Beijing is increasing wages in an attempt to stimulate domestic consumption, reduce the country’s dependence on low-priced exports and push companies to invest in more high-value goods. [Accessing Smartphone Popularity With ETFs.]

This would be a welcome change. After all, the trade deficit is rising and may rise further when it’s reported tomorrow, reports Peter Morici for TheStreet. China’s weak currency is a problem for U.S. exports. After all, who will buy American-made goods when Chinese goods are so much cheaper? But if the cost of doing business in China goes up, it may level out the playing field and everyone benefits. [ETFs to Watch in the Chinese Yuan Battle.]

For more information on China, visit our China category. These ETFs could be affected by the changes that take place in China, but in what ways remains to be seen. As wages rise, it may make technology more expensive for overseas consumers and companies. But as we’ve seen, many are willing to pay good cash for the latest gadget. In the short-term, the widening trade deficit is translating into a win for China.

  • iShares FTSE/Xinhua China 25 (NYSEArca: FXI)
  • SPDR S&P China (NYSEArca: GXC)
  • Claymore/AlphaShares China All-Cap (NYSEArca: YAO)
  • PowerShares USX Golden Dragon Halter (NYSEArca: PGJ)
  • WisdomTree Dreyfus Chinese Yuan (NYSEArca: CYB)
  • Market Vectors Chinese Renminbi ETN (NYSEArca: CNY)
  • SPDR Morgan Stanley Technology (NYSEArca: MTK)
  • PowerShares Dynamic Telecom & Wireless Portfolio (NYSEArca: PTE)
  • Vanguard Telecom Services (NYSEArca: VOX)

Max Chen contributed to this article.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Mr. Lydon serves as an independent trustee of certain mutual funds and ETFs that are managed by Guggenheim Investments; however, any opinions or forecasts expressed herein are solely those of Mr. Lydon and not those of Guggenheim Funds, Guggenheim Investments, Guggenheim Specialized Products, LLC or any of their affiliates. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.