Another Reason for China to Go Slow on Yuan Revaluation |
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June 29, 2011
The U.S. and other of China’s largest trading partners have been arguing for years now that revaluing the yuan would be good for China’s economy. Sure, China might lose some jobs in the export sector as the yuan became more expensive in dollar and euro terms. But it would make up for that disadvantage by boosting the purchasing power of Chinese consumers — whose purchases would create jobs in other sectors of the economy, especially services.
The U.S. and other of China’s largest trading partners have been arguing for years now that revaluing the yuan would be good for China’s economy. Sure, China might lose some jobs in the export sector as the yuan became more expensive in dollar and euro terms. But it would make up for that disadvantage by boosting the purchasing power of Chinese consumers — whose purchases would create jobs in other sectors of the economy, especially services. A new International Monetary Fund report, however, warns China against expecting such a happy outcome. A 10% increase in the value of the yuan, adjusted for inflation, would reduce employment growth by 0.4 to 1.4 percentage points “across sectors except for agriculture,” calculate IMF economists Ruo Chen and Mai Dao. Employment growth would slow not only in the export industry but in service industries too.
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