I don't disagree with your points, except that I don't think there is going to be an "instant" change of 40%. The Chinese will gradually ease up, I think.
Right now, they don't even seem to realize that they've got a problem, though. They will ease up because they will figure out that if they stop the peg cold turkey, then their dollar denominated investments will become worth a lot less. They've been acquiring dollar denominated assets throughout all this. That's how they've been manipulating the market.
The really assinine thing is that they could keep pace with the dollar without the manipulations, if they simply adjusted their money supply. Of course, their banking system is somewhat primitive, and that may be easier said than done. The reality, though, is that their policy of pegging the dollar could be viewed simply as a way of making sure that they are growing their money supply at the right rate. If they adjust their monetary policy so that the yuan tracks the dollar, then they know they are on track. The problem with that logic, though, is that since they are absorbing dollar denominated assets, it's more the dollar that they are trying to control than their own currency--a very bad idea. The supply of dollars worldwide is gargantuan compared to the supply of yuan.
Given the volitility, I think any large company investing in China would have been wise to hedge in some way. Whether GM has done that or not, I can't say.
"Given the volitility, I think any large company investing in China would have been wise to hedge in some way. Whether GM has done that or not, I can't say."
There is only so much that you can "hedge" before you become a hedge fund rather than a manufacturer.
If mere hedging was the answer, then GM could so do...for its current American products.
But Wall Street would rightly go nuts over the level of currency hedging required to price all American GM vehicles in Euros, Yen, or Yuans.
That much currency hedging would become your main line of business and your main focus of risk, rather than your "core" manfacturing.
...And there is also a transaction cost that is added into the equation. That much hedging would find that the fees for the contracts would become significant, and adding such costs is the antithesis of becoming more efficient.
Furthermore, you'd be doing *all* of the above simply in reaction to China's current currency manipulation.
Better to end that currency manipulation and get back to a free market than to have businesses *adding* costs for hedging in order to cope with government intervention in the Market.