The Chinese yuan is likely to appreciate more than most people expect, Jim Rickards, senior managing director for market intelligence at Omnis, a consulting firm, told CNBC Wednesday.
Wang Zhao | AFP | Getty Images
Bank of China
"It won’t go up to the 20 percent (Sen. Chuck) Schumer (D-NY) wants, but it’ll go up a lot more than that,"Rickards said."They are really separating themselves from the Fed’s zero interest rate policy; they have to raise rates."
The Chinese yuan had a de facto peg since 2008, but in June the People's Bank of China (PBOC) allowed the currency more flexibility to trade with the market. Schumer has been seeking more flexibility in China's currency policy, charging Beijing's policy with undervaluing the currency.
While the U.S. has welcomed more currency flexibilty, Rickards warns U.S. businesses dealing with Chinaneed to understand the economy is influenced by the Chinese communist party.
"Whenever you are doing business in China, you don’t just look at the spread sheets, or returns," Rickards said.
Businesses also need to consider the role of communist party ideology in any business decision.
"And it’s very opaque, that’s one of the difficulties, one the things American businessmen are not attuned to," Rickards said. "The party is alive and well."
Often the definition of state secrets isn't clear, so an innocent question at a cocktail party can lead to an arrest the next morning, he said.
"The lack of the rule of law is the biggest single issue," Rickards said.
Wilbur Ross, chairman and chief executive officer of WL Ross & Co., who was on a CNBC panel with Rickards, disagreed that China's communist government hinders business in China.
"While the form of the government is communistic, the society is capitalistic," Ross told CNBC. "I would argue that in many ways China is a more capitalistic environment than we are moving into."