The Asian Financial Crisis and Chinese Banking Reforms in 1998–2001

On 2 July 1997 the Asian Financial Crisis officially began with the devaluation of the Thai baht by 15±20 per cent. For Thailand, Indonesia, South Korea and Malaysia, the much-celebrated ‘Asian Economic Miracle’ came to an abrupt end. After decades of fast-paced growth and virtually uninterrupted expansion, there had been an abrupt reversal in capital flows out of these East Asian economies as growth prospects soured after the boom turned to bust. Much of the hot capital flowing into these countries in the years leading up to the crisis had turned from long-term foreign direct investment to short-term speculative investment, which was unsustainable in the long run. Much of the capital flowed in to finance an East Asian real estate bubble, which eventually collapsed, causing a deflation in asset prices. These countries saw their financial systems collapse, their economies falter and millions of their citizens returned to poverty, all within a few months. The financial crisis spread quickly to the Philippines and Hong Kong, then to Brazil and Russia, and eventually to Japan.