One of the great economic drivers in our world economy is China.  If you go to a Wal-Mart store here in Canada or buy some type of electronics like the iPhone 4, you are contributing to the Chinese economy.  In 2010 it seems like China is everywhere.

Canada has surely been poised to benefit from the great Chinese economic push on the world stage.  With our penchant for producing commodities such as lumber, oil, wheat and precious metals sending it over to China has been a boom for us.  Figuring out a way where the Chinese would become richer and buy even more from Canada has always been job one for many Canadian businesses.

So it was with great interest that I learned over the weekend that China was going to make moves to partially float their currency unit, the Yuan.  Even though we are far away from Chinese shores, I could feel the enthusiasm of market watchers across North America with that fresh Chinese news.  Simply put, the Chinese have been the factory, which has built consumer goods for North Americans to buy.  The hope is with the Chinese currency allowed to become more valuable, maybe they would be able to create demand here by buying more of “our” goods.  Markets reacted to this news like it was a fresh dose of testosterone.

Let me give you an example from the agricultural world, which should resonate beyond the farm gate.  For many years now China has been growing with double-digit growth rates.  The conventional wisdom has always been that as China gets richer, they will demand a better diet moving from rice to more meat in their diet.   The Chinese have limited agricultural production potential so the thought has always been they would get their agricultural commodities from Canada, the United States and South America.  All farmers would have to do is wait until prices went up.

Has it worked that way?  Yes it has.  China has always had an insatiable appetite for soybeans.  This appetite has led to record imports of soybeans from the United States and South America.  It has had the big effect of keeping soybean prices higher which has been very good for Canadian producers.  Ditto for almost every agricultural commodity that is produced in Canada.  So, when the Chinese currency unit goes up in value, the optics and Canadian farm country is of more and more sales and more and more profits.

You could also make this argument for our industrialized sector and our Canadian energy sector.  We all know that the Chinese have made several attempts to invest in the Canadian energy sector.  An increased value of the Yuan would only raise the demand for these products as the Chinese would  be able to buy more with what they have.  So in many ways the announcement that the Chinese government was going to allow a partial float of their currency was like a breath of fresh air on a stifling hot day.  Markets reacted accordingly and went up.

Of course none of this is ever straightforward.  Some agricultural markets actually rallied on the news but finished the day negative.  Clearly though, I think we should take it as good news but on the other hand Chinese law and currency fluctuation in the Middle Kingdom is never well explained.  We simply don’t know exactly what is going on with the Yuan.  The Chinese government and the Peoples Bank of China have simply given us the signal that they are proposing change.  The centralized control of the currency probably means that some of those fiscal goals will be met but really sitting here in Canada we do not know.

So in many ways it is a shot in the dark across the bow for better economic times ahead, for China and the rest of the world.    Keep in mind that the world is still dealing with the debt problems that we have in Europe.  Also too, in North America we need strong markets for our commodities and China represents about the best option.  Depending on what the peoples Bank of China does in concert with the Chinese government over the Yuan re-evaluation will surely affect our economic growth looking ahead.

As I’ve said many times before, all of this economic talk about China and Asia can be intoxicating.  However, remember that Asia has never been peaceful very long.  Also too, sometimes strange things happen in the Middle Kingdom.  However, with the Chinese Yuan on the move up, it was a good day.   I only hope it leads to many good days ahead for the Canadian economy.