Geely’s deal to acquire Volvo from Ford has been made official today. “Ford sells Volvo to China’s Geely auto group for $1.8 billion” and according to L.A. Times, Ford had originally paid $6.5 billion back in 1999. This acquisition helps Geely tap the domestic Chinese market better in the luxury segment where BMW, Lexus, and other foreign brands have dominated in the past. Geely will learn a great deal about the American and European auto markets through Volvo in terms of marketing, distribution, and global supply chain. Another take on this story by China Daily: “Geely’s Li to go global with Volvo deal.”
How does this relate to the RMB to USD peg? (A prerequisite on understanding the Yuan and Dollar issue, I recommend having a read of Opinion:Making Sense of the Dollar and Yuan by Allen.) I think before China does anything to arbitrarily raise the value of Yuan bilaterally on behalf of the USD (if ever such would occur), doesn’t it mean that China would have to have had a chance at diversifying her USD assets first? Without diversification, raising the value of the Yuan against the Dollar instantaneously makes China’s holding of U.S. treasuries worth less. What sane person does that? Buying of Volvo from Ford is a baby step at diversification from always buying U.S. treasury securities.