Trade in China and the Success of its Economy

4758 Words10 Pages

Trade in China and the Success of its Economy China has come to the forefront of the international finance scene following the East Asian financial crisis for two reasons. First, the post reform Chinese economy closely resembles the other East Asian countries. China experienced significant levels of growth led by exports, with a rapid expansion in labor-intensive exports in its early stage of development. Rapid growth was accompanied by a rapid increase in domestic savings and massive inflows of foreign capital (Perkins, 1986). The banking sector dominated financial intermediation and the ratio of non-performing loans was high. Estimates put non-performing loans at China's four leading banks at 25 per cent -- far higher than in South Korea or Thailand before they fell prey to the Asian contagion. Would China be the next victim of the crisis? (Dornbusch, 1997). The second reason why China came to the forefront of the international finance scene following the East Asian financial crisis is China’s economic performance became the key to the current economic stability of East Asia. During 1997 - 1998, China was the only country in the region to sustain significant growth. In particular, maintaining the stability of the renminbi, was seen as the last hope of achieving equilibrium in the regional currency system and facilitating recovery (Garnaut, 1998). The Chinese government took up the challenge and made a firm commitment not to devalue the renminbi in the short term. China's decision not to devalue in the face of internal pressures has been credited for stabilizing Asia's economic situation. Most economists predicted that a currency crisis was unlikely to damage China’s economy or trade; its macroeconomic fundamentals were healthy and it had the extra insurance of capital account controls. However, surrounded by neighbors in trouble, China could help but be somewhat effected by the larger, regional situation. The rest of the world continued to watch and worry about how much longer China would be able to defend its overvalued currency and still remain internationally competitive on an export basis (Song, 1998). This paper will begin by examining the economic background of China. We will see how China came to be in the position to devalue its currency as well as address some controls that were used to inhibit the devaluation. The paper will continue by ex... ... middle of paper ... ...my, September/October: 20-3, 55. Fong, Y. (2002). Personal interview with former UCLA International Economy Student, April 13, 2002. Huang, Y. (1999). The Last Steps Crossing the River: Chinese Reforms in the Middle of the East Asian Financial Crisis. New York: Graduate School of Business, Columbia University. Lardy, N.R. (1998). “China and the Asian Contagion”. Foreign Affairs, 77(4): 78-88. Mufson, S. (1998) “China not Going to Devalue Currency , U.S. Official Says”, Washington Post, A17. Perkins, D. (1986). China, The Next Giant? Seattle: University of Washington Press. Song, L. (1998). “China”, in R. McLeod and R. Garnaut (eds), East Asia in Crisis: From Being a Miracle to Needing One? New York: Routledge: 105-109. State Statistical Bureau of China. (1999). Statistical Report of National Economy and Social Development in 1998. Beijing and New York: China Statistical Publishing House. Wang, H. (1993), China’s Exports Since 1979. New York: St. Martin’s Press. World Bank (1990). China: Between Plan and Market. Washington: World Bank. Zhang, Z.Y. (1995) China’s Foreign Trade Reform and Export Performance, Singapore: National University of Singapore.

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