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Why has China survived the Asian crisis so well? What risks remain?

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  • John G. Fernald
  • Oliver D. Babson

Abstract

China's strong growth in the midst of the Asian crisis is striking. We explore features of China's financial system that helped insulate it from the crisis, and then try to assess whether China has avoided crisis or simply deferred it. We argue that regardless of whether the Asian crisis resulted from weak fundamentals or from "country runs" by investors, it is not surprising that China has survived so far. In a market-oriented system, pressures generally force rapid adjustment when institutions are, or are perceived to be, insolvent; these mechanisms do not operate fully in China. In addition, China's external accounts remain strong. Even in the absence of capital controls, the strength of these external fundamentals would plausibly preclude a self-fulfilling "country run" on China. Whatever their other effects, capital controls may have played a role in preventing Chinese financial institutions from borrowing excessively abroad, and hence may have helped keep China's external fundamentals strong. Clear risks remain for China's outlook.

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Bibliographic Info

Paper provided by Board of Governors of the Federal Reserve System (U.S.) in its series International Finance Discussion Papers with number 633.

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Date of creation: 1999
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Handle: RePEc:fip:fedgif:633

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Keywords: China;

References

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  1. John Fernald & John H. Rogers, 2000. "Puzzles in the Chinese stock market," Working Paper Series WP-00-13, Federal Reserve Bank of Chicago.
  2. Steven Radelet & Jeffrey Sachs, 1998. "The Onset of the East Asian Financial Crisis," NBER Working Papers 6680, National Bureau of Economic Research, Inc.
  3. Daniel H. Rosen, 1999. "Behind the Open Door: Foreign Enterprises in the Chinese Marketplace," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 23.
  4. Morris Goldstein, 1998. "The Asian Financial Crisis," Policy Briefs PB98-1, Peterson Institute for International Economics.
  5. John Fernald & Hali Edison & Prakash Loungani, 1998. "Was China the first domino? assessing links between China and the rest of emerging Asia," International Finance Discussion Papers 604, Board of Governors of the Federal Reserve System (U.S.).
  6. Fernald, John & Edison, Hali & Loungani, Prakash, 1999. "Was China the first domino? Assessing links between China and other Asian economies," Journal of International Money and Finance, Elsevier, vol. 18(4), pages 515-535, August.
  7. Michael Mussa & Giovanni Dell'Ariccia & Barry J. Eichengreen & Enrica Detragiache, 1998. "Capital Account Liberalization: Theoretical and Practical Aspects," IMF Occasional Papers 172, International Monetary Fund.
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Cited by:
  1. repec:hal:cesptp:halshs-00111153 is not listed on IDEAS
  2. John P. Bonin & Yiping Huang, 2001. "Dealing with the Bad Loans of the Chinese Banks," William Davidson Institute Working Papers Series 357, William Davidson Institute at the University of Michigan.
  3. Vincent Bouvatier, 2007. "Hot Money Inflows and Monetary Stability in China: How the People's Bank of China Took up the Challenge," Money Macro and Finance (MMF) Research Group Conference 2006 161, Money Macro and Finance Research Group.
  4. Rod Tyers & Yongxiang Bu & Ian Bain, 2006. "China’s Equilibrium Real Exchange Rate: A Counterfactual Analysis," ANU Working Papers in Economics and Econometrics 2006-466, Australian National University, College of Business and Economics, School of Economics.
  5. Rod Tyers & Jane Golley, 2006. "China's Growth to 2030: The Roles of Demographic Change and Investment Risk," ANU Working Papers in Economics and Econometrics 2006-461, Australian National University, College of Business and Economics, School of Economics.
  6. Wink Joosten, 2004. "The Asian Financial Crisis in Retrospect: What Happened? What Can We Conclude?," CPB Memorandum 87, CPB Netherlands Bureau for Economic Policy Analysis.
  7. 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.
  8. Carsten Hefeker & Andreas Nabor, 2005. "China's role in East-Asian monetary integration," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 10(2), pages 157-166.
  9. Vincent Bouvatier, 2006. "Hot money inflows in China : How the people's bank of China took up the challenge," Cahiers de la Maison des Sciences Economiques bla06011, Université Panthéon-Sorbonne (Paris 1).
  10. 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.
  11. Françoise Lemoine, 2000. "FDI and the Opening Up of China's Economy," Working Papers 2000-11, CEPII research center.
  12. 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.

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