China in the Asian Financial Crisis

The widely held view of the Asian Financial Crisis is that it had no substantial impact on China. In fact, the country was far more vulnerable than most people realized, due to the high possibility of financial contagion entering the system from Hong Kong through Guangdong province. This book analyzes the severe policy challenge that it presented for China’s leaders. The crisis in Guangdong’s financial institutions provided a forewarning of the difficulties that lay ahead as China’s integration with the global financial system deepened. The experience of Guangdong in the Asian Financial Crisis provided a profound lesson for China’s policy-makers as they planned the country’s strategy for financial reform in the following years. China was able to avoid disaster by astute and difficult policy choices, in the face of fierce pressure from outside the country, as well as from different domestic interests at many different levels. The successful resolution of the crisis provided a breathing space for the leadership. It gave it time to undertake necessary reforms in the country's financial system in the decade that followed the crisis.

PART 1 The Challenge: The Threat of Forest Fire 1 Introduction 2 Guangdong in the 1990s 3 Linkages between Hong Kong and Guangdong 4 Hong Kong in the Asian Financial Crisis 5 Guangdong in the Asian Financial Crisis 6 The Threat of Contagion for China’s Financial System 7 Conclusion PART 2 The Response: Three Steps (San Bu Zou) to Control the Fire 1 Introduction 2 The First Step: The Bankruptcy of Guangdong International Trust and Investment Corporation 3 The Second Step: Restructuring Guangdong Enterprises 4 The Third Step: Cleaning up the Local Financial Institutions 5 Conclusion: The Achievement of ‘Cutting the Trees to Save the Forest’ (Kan Shu Jiu Lin) POSTSCRIPT Finance and the Real Economy: China and the West Since the Asian Financial Crisis Introduction The West China Interaction between China and the West Fragile International Financial System

Peter Nolan is Founding Director, Centre of Development Studies, University of Cambridge and Director, China Centre, Jesus College, Cambridge.