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China and the Two Crises: From 1997 to 2009

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  • Naughton, Barry
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    Abstract

    China appears to have successfully weathered the worst impact of both the Asian Financial Crisis (1997-98) and the Global Financial Crisis (2008-2009). Chinese leaders did respond quickly, and on occasion massively, to the challenge of external crisis. In retrospect, however, each crisis response can be seen to have involved an element of over-shooting, which was followed by domestic reformulation and retrenchment. This paper will track commonalities and differences of the two crises in three dimensions: immediate macroeconomic crisis response; institutional adaptations; and trade and exchange rate policies. The discussion will clarify that the very “success” of the response to the AFC laid the foundation for deeper economic problems relating to the GFC. In turn, the response to the GFC gave government officials and state-owned enterprises control over an even larger volume of resources, and reduced the accountability of both officials and financial institutions, changes that inevitably have softened budget constraints, reduced individual risk, and encouraged even larger investments. In consequence, the Chinese economy now faces accumulating problems from the maladaptation of domestic institutions, a maladaptation that is not unrelated to the crisis response.

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    File URL: http://hdl.handle.net/10685/86
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    File URL: http://repository.ri.jica.go.jp/dspace/bitstream/10685/86/1/JICA-RI_WP_No.53_2013.pdf
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    Bibliographic Info

    Paper provided by JICA Research Institute in its series Working Papers with number 53.

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    Date of creation: 01 Feb 2013
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    Handle: RePEc:jic:wpaper:53

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    Keywords: China ; Asian Financial Crisis ; Global Financial Crisis ; monetary policy ; stimulus ; economic reform;

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    1. Barry Naughton, 2007. "The Chinese Economy: Transitions and Growth," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262640643, December.
    2. Yu Yongding, 2007. "Global Imbalances and China," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 40(1), pages 3-23, 03.
    3. Park, Dong-hyun & Shin, Kwanho & Jongwanich, Juthathip, 2009. "The Decline of Investment in East Asia since the Asian Financial Crisis: An Overview and Empirical Examination," ADB Economics Working Paper Series 187, Asian Development Bank.
    4. Guonan Ma, 2006. "Sharing China's Bank Restructuring Bill," China & World Economy, Institute of World Economics and Politics, Chinese Academy of Social Sciences, vol. 14(3), pages 19-37.
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