From crisis to crisis

Two bookends delineate the current macro debate -- the Asian financial crisis of 1997-98 and the US subprime crisis of 2008-09. China was remarkably adept at avoiding both of these conflagrations. Will it be so lucky next time?
Stephen Roach
Stephen Roach

In the crisis of the late 1990s, China was unscathed for two key reasons. It benefited from a closed capital account and a nonconvertible currency -- ignoring the IMF-sponsored orthodoxy of international finance and enabling it to hold the renminbi stable at a time when other Asian currencies were collapsing. And it drew support from a proactive fiscal policy -- mainly accelerated infrastructure spending -- that enabled it to offset the weakness of external demand in Asia and elsewhere in the world.

Unlike the home-grown Asian crisis of the late 1990s, the global crisis of 2008-09 was a far more serious threat to China. It hit the Achilles' heel of an unbalanced...

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