We keep reading about pressure on the Chinese government to let the value of the currency float relative to other world currencies - especially the US dollar. Several clients have asked me whether this will impact the price of Chinese outsourcing resources, and thereby reduce our competitiveness. After thinking about this and talking to several executives from Chinese outsourcing companies, I’m convinced that the answer is, “No. Rates will not increase significantly, and competitiveness will not be hurt.”

I base this conclusion on two complementary theses. First, I do not believe that the Chinese government will allow for a significant relative valuation increase within the foreseeable future. Instead, I think that they will continue to allow for periodic very small increases to keep the US from really raising hell. A dramatic increase in the value of the Yuan is simply not in China’s best interest.

Second, many Chinese vendors are positioning themselves as cost efficient providers. They will fight as hard as possible to keep their operating costs low enough to continue to support competitive pricing. Since wage inflation for software professionals is much lower in China than in India, I believe that China’s software outsourcing vendors will continue to be extremely competitive on price.