There are increasing signs that China's heading for big economic changes, and that will likely fuel an increase to the market chaos. The most recent speculation involves a potential upward revaluation of the Chinese Yuan against foreign currencies. Goldman Sachs Chief Economist Jim O'Neill (no lightweight) -- says that something is brewing in China as they may be preparing the revalue the Yuan higher by as much as 5%. This would represent another leg of Chinese monetary tightening. China has been tightening its monetary policy by requiring banks to increase reserves. It has a history of raising reserves repeatedly when it goes into a tightening mode. A Yuan revaluation would represent a big move to cool off growth and stave off inflation, which has been increasing in China. Marketwatch reports that real-estate prices on the Chinese vacation island of Hainan have increased 30% in one week.  That's almost the definition of hyperinflation. In theory, this is where things should have gone a long time ago. With money flooding into China, keeping their currency pegged to the sinking U.S. Dollar was an invitation to trouble (and massive inflation). If they are close to revaluing, it means they are starting to acknowledge that their anti-market peg could be harmful to global markets. If such an event would to occur, what would it mean in economic terms? One implied effect would be to cool-off Chinese imports and boost exports in the U.S. and Europe, where goods would get cheaper relative to Chinese stuff, in the case of the Yuan going higher. But a potentially harmful effect would be to accelerate inflation in the West, where so many Chinse goods are purchased at Home Depot, largely helped by the past Chinese mercantilist policy of  keeping the cost of labor and goods low. Another knee-jerk market reaction might be that this will be a weight on global growth. With the markets looking increasingly toward China to fuel global growth, a Yuan revaluation could be harmful to perception of economic growth. As an investor and trader it's hard to game how markets will react.  The short-term shock of further Chinese tightening to the market may bring back deflationary fears, taking everything down together (commodities, stocks, gold, e.t.c.). But at the same time, it would be an acknowledgement by the Chinese government that inflation is going higher in the long term, which would eventually lead to lower U.S. bond prices, higher commodity prices, and more monetary uncertainty, which could result in rising gold prices. It would not be the first time the Chinese government allowed the currency to appreciate against foreign curriencies. In the past, markets have reacted to Yuan adjustments by boosting the prospects of companies with large Chinese exports, including commodities. Contrarily, any import-sensitive company like Walmart could see its stock decline. An optimist might note that Chinese stocks have been selling off for months, possibly anticipating more of the tightening phase. Bruce Krasting, a contributor over at Zero Hedge, has a nice collection of musings on why the market implications of this are complex and hard to decipher. The bottom line? A Yuan revluation would be a sea-change in Chinese monetary policy which markets have not ever had to deal with. Prepare for more chaos.