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Was China the first domino? assessing links between China and the rest of emerging Asia

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Author Info
John Fernald
Hali Edison
Prakash Loungani

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Abstract

We assess links between China and the rest of emerging Asia. Some commentators have argued that China’s apparent devaluation in 1994 may have contributed to the Asian financial crisis. We argue that the devaluation was not economically important: The more-relevant exchange rate was a floating rate that was not devalued, and high Chinese inflation has led to a very sharp real appreciation of the currency. Although in principle, export competition with China could nevertheless have placed pressure on other Asian exporters, we argue that the striking feature of the data is the common movement between export growth from China and from other developing Asian economies. To the extent there is evidence of export competition, it is the period from about 1989 to 1993: China’s exchange rate depreciated sharply, Chinese export growth exceeded export growth of other Asian economies, and the composition of Asian exports (measured by export shares of various goods to the United States and other industrial economies) changed substantially. Finally, we speculate on the effects of the Asian crisis on China’s prospects. China’s economic growth is likely to slow because of increased trade competition as a result of the devaluation of other Asian currencies, and because of reduced capital inflows. In addition, these reduced inflows are likely to reduce job creation in the non-state sector, and hence make enterprise restructuring more difficult in China.

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Paper provided by Board of Governors of the Federal Reserve System (U.S.) in its series International Finance Discussion Papers with number 604.

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Date of creation: 1998
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Handle: RePEc:fip:fedgif:604

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Keywords: Financial markets ; Asia ; China;

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Dow, James & Gorton, Gary, 1997. "Noise Trading, Delegated Portfolio Management, and Economic Welfare," Journal of Political Economy, University of Chicago Press, vol. 105(5), pages 1024-50, October.
    Other versions:
  2. Khor, Hoe Ee, 1994. "China's Foreign Currency Swap Market," IMF Papers on Policy Analysis and Assessments 94/1, International Monetary Fund.
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  3. Chan, K. Hung & Chow, Lynne, 1997. "An empirical study of tax audits in China on international transfer pricing," Journal of Accounting and Economics, Elsevier, vol. 23(1), pages 83-112, May. [Downloadable!] (restricted)
  4. Chan Huh & Kenneth Kasa, 1997. "A dynamic model of export competition, policy coordination and simultaneous currency collapse," Pacific Basin Working Paper Series 97-08, Federal Reserve Bank of San Francisco.
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  5. Michael W. Bell & Kalpana Kochhar & Hoe Ee Khor, 1993. "China at the Threshold of a Market Economy," IMF Occasional Papers 107, International Monetary Fund.
  6. K.C. Fung, 1996. "Accounting for Chinese Trade: Some National and Regional Considerations," NBER Working Papers 5595, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  7. Bernard Laurens & Hassanali Mehran & Marc Quintyn & Tom Nordman, 1996. "Monetary and Exchange System Reforms in China: An Experiment in Gradualism," IMF Occasional Papers 141, International Monetary Fund.
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  1. Rod Tyers & Jane Golley, 2006. "China's Growth to 2030: The Roles of Demographic Change and Investment Premia," PGDA Working Papers 1206, Program on the Global Demography of Aging. [Downloadable!]
  2. Alan G. Ahearne & John G. Fernald & Prakash Loungani, 2001. "Countering contagion: Does China's experience offer a blueprint?," Economic Perspectives, Federal Reserve Bank of Chicago, issue Q IV, pages 38-52. [Downloadable!]
  3. Giancarlo Corsetti & Paolo Pesenti & Nouriel Roubini & Cedric Tille, 1999. "Competitive Devaluations: A Welfare-Based Approach," NBER Working Papers 6889, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  4. F. Gerard Adams & Byron Gangnes & Yochanan Shachmurove, 2004. "How the Dragon Captured the World Export Markets: Outsourcing and Foreign Investment Lead the Way," PIER Working Paper Archive 04-042, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania. [Downloadable!]
  5. Lane, P & Honohan, P, 1999. "Pegging To The Dollar And The Euro," Trinity Economics Papers 996, Trinity College Dublin, Department of Economics. [Downloadable!]
    Other versions:
  6. Alan G. Ahearne & John G. Fernald & Prakash Loungani & John W. Schindler, 2003. "China and emerging Asia: comrades or competitors?," International Finance Discussion Papers 789, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
    Other versions:
  7. Giancarlo Corsetti & Paolo Pesenti & Nouriel Roubini, 1998. "Paper Tigers? A Model of the Asian Crisis," NBER Working Papers 6783, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  8. Francois Gurtner, 1999. "The stability of the Renminbi in the wake of the Asian financial crisis," Intereconomics: Review of European Economic Policy, Springer, vol. 34(3), pages 135-143, May. [Downloadable!] (restricted)
  9. John G. Fernald & Oliver D. Babson, 1999. "Why has China survived the Asian crisis so well? What risks remain?," International Finance Discussion Papers 633, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
  10. Giancarlo Corsetti & Paolo Pesenti & Nouriel Roubini, 1998. "What Caused the Asian Currency and Financial Crisis? Part II: The Policy Debate," NBER Working Papers 6834, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  11. Cedric Tille, 1999. "The role of consumption substitutability in the international transmission of shocks," Staff Reports 67, Federal Reserve Bank of New York. [Downloadable!]
  12. Rod Tyers & Jane Golley, 2006. "China's Growth to 2030: The Roles of Demographic Change and Investment Risk," ANUCBE School of Economics Working Papers 2006-461, Australian National University, College of Business and Economics, School of Economics. [Downloadable!]
  13. Reuven Glick, 1998. "Thoughts on the origins of the Asia crisis: impulses and propagation mechanisms," Pacific Basin Working Paper Series 98-07, Federal Reserve Bank of San Francisco. [Downloadable!]
  14. Alan G. Ahearne & John G. Fernald & Prakash Loungani & John W. Schindler, 2006. "Flying geese or sitting ducks: China’s impact on the trading fortunes of other Asian economies," International Finance Discussion Papers 887, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
  15. Finicelli, Andrea & Liccardi, Alessandra & Sbracia, Massimo, 2005. "A New Indicator of Competitiveness for Italy and the Main Industrial and Emerging Countries," MPRA Paper 4703, University Library of Munich, Germany. [Downloadable!]
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