China's Changing Competitive Position: Lessons from a Unit-Labor- Cost-Based REER

This paper calculates a unit labor-cost based real effective exchange rate for China for the period 1987-2002. It examines carefully which data sources can be used given the known limitations of Chinese data and constructs to them together with internationally available unit labor cost estimations for a number of industrialized countries, including Korea and Taiwan. It is found that gauged by the ULC measure the increase in manufacturing competitiveness from the late 1980s to the mid 1990s has been even more remarkably than given known industrial-price- based measures for real effective exchange rates suggest. However, since then, Chinese manufacturers have lost more ground than previously thought.