It is widely accepted that China needs to shift from its past mode of export-led growth and start to rely more on domestic demand. What role could the real appreciation of the Chinese yuan play in this regard? We attempt to quantify the impact on the structure of the Chinese economy of the real appreciation of the Chinese yuan. We argue that the potential of the service sector to generate income and jobs may be significantly under-estimated by official statistics, as a result of the under-estimation of household consumption of services. While there is no evidence of large under-valuation for the Chinese yuan, we do find that a real appreciation in the order of 20% would bring the Chinese price level in line with the world average level, after the Balassa-Samuelson effect is factored in. In turn, such a real appreciation could increase the service share of employment by 7%.
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Paper provided by University of Alberta, Department of Economics in its series Working Papers with number
2009-11.
Find related papers by JEL classification: E01 - Macroeconomics and Monetary Economics - - General - - - Measurement and Data on National Income and Product Accounts and Wealth E21 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth F31 - International Economics - - International Finance - - - Foreign Exchange O53 - Economic Development, Technological Change, and Growth - - Economywide Country Studies - - - Asia including Middle East
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