China: To Float or Not To Float? (C)- Esquel Group and the Chinese Renminbi

Laura  Alfaro; Rafael M. Di Tella; Ingrid  Vogel

Case | HBS Case Collection | March 2006 (Revised November 2006)

China: To Float or Not To Float? (C)- Esquel Group and the Chinese Renminbi

by Laura Alfaro, Rafael M. Di Tella and Ingrid Vogel

Abstract

In July 2005, China revalued its currency by 2.1% and adjusted its exchange rate regime toward a more market-based system. Esquel Group, a family-run, privately held textiles firm specializing in high-quality cotton shirts with its most significant manufacturing base located in China, was among those companies confronted with the challenge of addressing the revaluation of the yuan and the possibility of future appreciation. Provides a brief overview of China's textile industry and background on Esquel Group.

Keywords: Family Business; Currency Exchange Rate; Private Ownership; Problems and Challenges; Value Creation; China;

Format: Print

8 pages

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Citation:

Alfaro, Laura, Rafael M. Di Tella, and Ingrid Vogel. "China: To Float or Not To Float? (C)- Esquel Group and the Chinese Renminbi." Harvard Business School Case 706-023, March 2006. (Revised November 2006.)

On September 20, 2017, Hurricane Maria swept over Puerto Rico, devastating the island’s infrastructure and agriculture. The natural disaster was layered atop years of mounting financial distress. Before the hurricane, Puerto Rico had accumulated $74 billion in debt and beginning in 2014, the island had withheld debt payments despite the commonwealth’s constitutional guarantee of its general obligation bonds. In turn, the island found itself effectively excluded from capital markets while simultaneously unable to declare bankruptcy in US courts due to its status as a territory. In 2016, the US Congress had intervened, passing the Puerto Rico Oversight, Management, and Economic Stability Act (Promesa), which established an eight-member Oversight Board to manage the island’s fiscal planning and restructure its debts and other fiscal obligations under bankruptcy-like proceedings. Many stakeholders felt hopeful that the Oversight Board could help Governor Ricardo Rosselló enact reforms that would improve public services, eliminate government waste, re-establish creditworthiness, and ultimately, foster economic growth. But, many questions still remained: Was Promesa and the Oversight Board the best method to assist the island in fiscal recovery? Was the Board’s fiscal plan an acceptable approach? Would the island be able to regain access to capital markets and attract investments without allocating funds for its creditors in the near future?

Case | HBS Case Collection | July 2005 (Revised October 2019)

The U.S. Current Account Deficit

Laura Alfaro, Rafael Di Tella, Ingrid Vogel, Renee Kim, Sarah Jeong, Matthew Johnson, Jonathan Schlefer, Laura Alfaro, Rafael Di Tella, Ingrid Vogel, Renee Kim, Sarah Jeong, Matthew Johnson and Jonathan Schlefer

Investors and policymakers throughout the world were confronted with the risk of painful economic consequences arising from the large U.S. current account deficit. In 2007, the U.S. current account deficit was $731 billion, equivalent to 5.3% of GDP. The implications of the deficit were debated with intensity. At one extreme, it was argued that large deficits would eventually resolve themselves smoothly, even if they persisted for many more years. Former Federal Reserve Chairman Alan Greenspan was among those expecting a "benign resolution to the U.S. current account imbalance." Other analysts, such as economists at the World Bank, believed the large deficits raised the risk of a sharp and disorderly fall of the dollar and that necessary macroeconomic adjustment could be painful, for the United States as well as for the rest of the world. The Financial Times asked: "How long will foreigners be prepared to make such generous 'gifts' to the US?" In this environment, Berkshire Hathaway, run by legendary investor Warren Buffett, postulated that current account imbalances would lead to "some chaotic markets in which currency adjustments play a part" and announced to shareholders a plan to increase investment in overseas companies to protect against this risk. It remained to be seen what the short- and long-term implications of the current account deficit would ultimately yield.

Keywords: Macroeconomics; Borrowing and Debt; Currency; Foreign Direct Investment; Business and Government Relations; United States;

Citation:

Alfaro, Laura, Rafael Di Tella, Ingrid Vogel, Renee Kim, Sarah Jeong, Matthew Johnson, and Jonathan Schlefer. "The U.S. Current Account Deficit." Harvard Business School Case 706-002, July 2005. (Revised October 2019.) View Details

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China: To Float or Not To Float? (C)- Esquel Group and the Chinese Renminbi

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