It may seem like a silly question, but it’s actually a difficult question to answer quantitatively.
The standard measure is the CPI deflationary trade-weighted exchange rate, but this uses prices associated with consumers rather than producers. And not the cost of production. As discussed in Chin (2006)Unit labor cost (ULC) would be most appropriate. Unfortunately, neither the OECD nor the IMF reported a decline in the ULC exchange rate to China.
Below are estimates of CEIC compared to BIS CPI shrinkage.
Figure 1: CPI deflated Chinese Yuan value (blue), ULC deflated Chinese Yuan value (red), both 2020=100. Source: BIS via FRED; CEIC.
Please note that China’s ULC contraction series is for the entire economy, not just the trade sector, making it a suitable sector to determine competitiveness. For more information on macro competitiveness, see: Chin and Johnston (1996).
