NEW YORK (TheStreet) -- An overlooked factor in China's economy is the rising strength of its currency. The markets have been focusing on the contraction in manufacturing activity for China for January. But with the Yuan increasing, China will benefit in a myriad of ways from having a more valuable currency. Investors can capitalize on publicly traded companies that gain from business with China such as Rio Tinto (RIO), Westpac Banking Corporation (WBK) and Cummins (CMI).If the Yuan were weak, it would not be increasing in its role as a reserve currency in international trade. It has surpassed the Euro as the second most widely used settlement unit, behind only the U.S. dollar. China has not been shy about stating its objective of having the yuan replace the dollar as the global reserve currency unit.
A stronger yuan helps in that role. When a currency rises in value, items priced in other units become that much cheaper. A yuan that is worth more reduces the price of imports for Chinese consumers and companies.
That comports very well with Beijing's move to strengthen its consumer economy, as detailed in a previous article on TheStreet.
It is also positive for the future of Rio Tinto.
When the People's Republic of China does well, so does the island nation of Australia. With an economy based on natural resources, major Australian corporations such as BHP Billiton ( BHP) do better when China is gobbling up coal, copper, and other commodities. That benefits Westpac Banking Corporation, which was the first bank established in Australia in 1817. It now has nearly 12 million customers in both personal and commercial lines of business (the population of Australia is around 23 million).
Rio Tinto is the second largest producer in the world of industrial metals and minerals such as aluminum and iron ore. China is its biggest customer. Aluminum, copper, iron ore, and the other products of Rio Tinto are are used in building and operating factories and other facilities. The company recently raised its outlook due to increasing demand from China.
For Cummins, sales in China now exceed $3 billion. By 2020, China will account for half of the truck sales in the world, as estimated by the Boston Consulting Group. The engines and other equipment of Cummins will power the trucks and other machinery needed in this effort in China.
Short term, the story is the slowdown in manufacturing growth in China last month. Long term, it is that the globe's most populous country is now the biggest trading partner in the world with more purchasing power than any country and a currency rising in value. Combined with Beijing's effort to increase domestic spending, the consumer sector in China will expand. The demand emanating from this growth in spending from nearly 1.4 billion people in China will bolster the fortunes of Cummins Engine, Rio Tinto and Westpac Banking Corporation.
At the time of publication, the author held no positions in any of the stocks mentioned.
This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.