Wednesday, September 10, 2008

Attention Trina Solar Investors: China Inflation Eases As Trade Gap Grows (TSL)

Because Trina changed their functional currency to the U.S. dollar it is susceptible to a strengthening Chinese renminbi.
(I'll leave the why of TSL's decision to break from the currency herd for another day)

The Chinese central bank was under great pressure to rein in food price inflation over the last year. Pork prices up 40% was really pissing people off. The policy option of raising interest rates is the classic prescription for inflation because it works. It also has the effect of strengthening the currency which is the last thing the central bank wants because it would make Chinese exports less competitive. The export focused factories are the key (right now) for absorbing workers coming to the cities from the countryside. Any slowdown in job creation has direct social and political ramifications. The Chinese rulers know this and are working to develop the domestic economy. They have also put restrictions on population flows to the already gigantic urban centers.
(any idea what the population of Guangzhou is? Three Chicagos)

Any slowdown in inflation buys the Chinese time and has a salutory effect on Trina's income statement. Depending on where the currency stands in three weeks, TSL could cut their $6.1 mil currency loss from last quarter by $4.0 mm and add between 13 and 16 cents per share to this quarter's earnings. This has gotten to be a long introduction, let's just say we're pulling for the Chinese on this one.
From the Wall Street Journal:
The global retrenchment in prices for food, energy and raw materials helped boost China's trade surplus and reduce inflation in August, alleviating two key difficulties for Beijing and giving authorities more room to support the economy if needed.

China's Customs agency said Wednesday that imports grew 23.1% in August from a year earlier, down sharply from the 33.7% gain in July, as the decline in commodity prices cut the country's monthly bill for things like crude oil, iron ore and soybeans. Export growth also slowed but by a smaller margin, notching up a 21.1% increase. That left a trade surplus for the month of $28.7 billion, 15% more than a year ago and a new record high....MUCH MORE