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Immature Market

The financial market of China (which is not most robust market) may not be able to handle revaluation. The Shenzhen and Shanghai Exchange were formed in late 90's and even then they were used for funneling the fund in state-owned enterprise.
A sudden appreciation of currency will badly affect many financially unsophisticated and unhedged firms.

Increase in NPAS of Bank

The weak banking system of China has huge NPAs and it is being mobilized and sold to US investors. Increased value of Yuan will reduce its appeal to US investors.

Hot Money & Increase in Volatility

There has been huge capital influx into China recently purely through speculation. Once revaluation is done and investors gain sufficient return, this capital will flow out of country. If it revaluates too slowly, it might be indicator to investors that more appreciation is to come, but if it happens too fast, there would be too many funds at once. Depending upon the rate of revaluation, it may or may not be a threat of fund outflow. Either way high volatility is assured. In case of deliberate pull back of economy, curbing possible gain from non-currency means lead to investors will to remain invested.

What will be the Impact on USA?

Advantages

Control Over Deficit

China alone forms one third of US $600 bn global trade deficit. A revaluation of Yuan would definitely help US control the deficit.

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* Contributed by -
Jyoti Singh,
PGDBM 2006,
IMT, Ghaziabad.