China's Dangerous Overvaluation Article Example | Topics and Well Written Essays - 500 words

China's Dangerous Overvaluation - Article Example Based upon labor costs and trade patterns, author is of the view that Yuan is certainly overvalued by approximately 15% suggesting that it’s time for China to take corrective measures. Author suggests measuring increasing labor costs as one of the indicators to measure how much the currency has appreciated and also cites the fact that labor costs have increased more than the overall profitability of the Chinese companies. Author indicates that any further appreciation in the currency would actually be more harmful for the country because the overall level of debt has been creeping up in the economy which would ultimately hurt the domestic consumption in China. Author suggests that to arrest the appreciation of Yuan, one way could be to allow domestic prices to adjust to the appreciated Yuan however; this may result into difficult economic consequences whereas rebalancing from investment to consumption is recommended as an easier way to manage Yuan. Probably one of the biggest weaknesses of the article is the absence of any figures and data based upon which author made the claims. Almost all the arguments are without any solid economic data and most arguments are relatively theoretical in nature. It would have been much better had the author used the real economic data to point out the appreciation trends in the value of Yuan against the major international currencies specially US Dollar. It is also critical to note that China has basically not highlighted as to how an appreciated Yuan have been benefiting Chinese economy in maintaining healthy trade surplus besides emerging as the leading export oriented economy in the world. An increase in the labor costs may not be one of the basic indicators of measuring the appreciation in Yuan. An increase in labor costs may also be due to the increasing specialization within the Chinese economy and the fact that Chinese workers may be gaining more advanced skills. Gaining more