In 1997 Asia’s ‘miracle economies’ were hit by an unprecedented and unexpected financial crisis, causing falling export growth, currency shocks, declines in productivity and resulting in a US$60 billion IMF bailout. Contemporaries feared that the localised crisis would lead to a world wide crisis through contagion, starting with China due to their considerable intra-regional trade and investment with those countries affected by the crisis. China suffered from the same inherent structural weaknesses that caused the demise of its Asian counterparts, perhaps most clearly seen through its “bank-dominated financial systems, weak central bank regulation and supervision of commercial banks, excessive lending, and a large buildup of non-performing …show more content…
The foremost theories speculate that the primary cause was poorly regulated and over-leveraged financial institutions, making inefficient loans sparking investor panic. Financial weaknesses were also prevalent in China’s financial system as seen Table 1, China’s bank loans to GDP was very similar to that of Malaysia at 92.7 and considerably higher than Indonesia at 55.4, total debt to reserves was also slightly higher than Malaysia at 162.0. China’s financial system was potentially weaker than its neighbours due to excessive NPL 's, at a conservative estimate these were in the region of U$200 billion equating to 25% of GDP. In China’s four largest state owned banks NPL’s increased from 20% in 1994 to 25% in 1997, far higher than the ratios in South Korea (17%) or Thailand pre-crisis. All four of China’s largest banks would be deemed insolvent using the internationally accepted 8% capital adequacy standard, therefore it was not financial sector differences that guaranteed China’s …show more content…
George Yeo, Singapore’s minister for information, praised the Beijing administration “the determination of the Chinese government not to devalue the renminbi in order not to destabilise Asia further will long be remembered.” Floating the RMB would have been devastating to the Chinese economy, through the considerable appreciation of the nominal exchange rate, and the subsequent reduction in
The financial crisis of 2007–2008 is considered by many economists the worst financial crisis since the Great Depression of the 1930s. This crisis resulted in the threat of total collapse of large financial institutions, the bailout of banks by national governments, and downturns in stock markets around the world. The crisis led to a series of events including: the 2008–2012 global recessions and the European sovereign-debt crisis. The reasons of this financial crisis are argued by economists. The performance of the Federal Reserve becomes a focal point in this argument.
report of the national commission on the causes of the financial and economic crisis in
Shahrokhi, M. (2011). The global financial crises of 2007-2010 and the future of capitalism. Global Finance Journal, 22, 193-210. doi: 10.1016/j.gfj.2011.10.010.
Gittings, John. The Changing Face of China: From Mao to Market. Oxford: Oxford UP, 2006. Print.
China's continuing impact on the world economy lands in developed countries that include Hong Kong, Europe, Japan, and Australia have no choice but to deal with the very real potential of a decline in export activities. However, what offsets these negative are lower commodity and oil prices, along with lower interest rates, which provide hope of a boost in the global financial world.
was a lot of pressure from the public, Deng Xiaoping did not cave in. Instead,
Xingzhong, LI Daokui David YIN. "The International Monetary System in the Era of Post-Financial Crisis: What Policy Options Does China Have?[J]." Journal of Financial Research 2 (2010): 005
The "subprime crises" was one of the most significant financial events since the Great Depression and definitely left a mark upon the country as we remain upon a steady path towards recovering fully. The financial crisis of 2008, became a defining moment within the infrastructure of the US financial system and its need for restructuring. One of the main moments that alerted the global economy of our declining state was the bankruptcy of Lehman Brothers on Sunday, September 14, 2008 and after this the economy began spreading as companies and individuals were struggling to find a way around this crisis. (Murphy, 2008) The US banking sector was first hit with a crisis amongst liquidity and declining world stock markets as well. The subprime mortgage crisis was characterized by a decrease within the housing market due to excessive individuals and corporate debt along with risky lending and borrowing practices. Over time, the market apparently began displaying more weaknesses as the global financial system was being affected. With this being said, this brings into question about who is actually to assume blame for this financial fiasco. It is extremely hard to just assign blame to one individual party as there were many different factors at work here. This paper will analyze how the stakeholders created a financial disaster and did nothing to prevent it as the credit rating agencies created an amount of turmoil due to their unethical decisions and costly mistakes.
Takagi, S. (2010) ‘Applying the Lessons of Asia: The IMF’s Crisis Management Strategy in 2008’, ADBI Working Paper 206. Tokyo: Asian Development Bank Institute. Available from: http://www.adbi.org/workingpaper/2010/03/16/3638.imf.crisis.management.strategy.2008/ [Accessed 10 November 2013]
Many of the “Elite” financial figures could not give a definite answer about why this crisis occurred as well as stated by many of the people interviewed, “We don’t know how it happened.” Many young brokers working for JP Morgan back in the middle of the 90’s believed they could come up with a way to cut risk, credit derivatives. Credit Derivatives are just a way of using other methods to separate and transfer risk to someone else other than the vender and free up capital. They tested their experiment with Exxon Mobile who were facing millions of dollars in damage for the Valdez Oil Spill back in 1989 by extending their line of credit. This also gave birth to credit default swaps (CDS) which a company wants to borrow money from someone who will buy their bond and pay the buyer back with interest over time. Once the JP Morgan and Exxon Mobile credit default swap happened, others followed in their path and the CDS began booming throughout the 90’s. The issue was that many banks in...
Kau, Michael Y. China in the Era of Deng Xiaoping: A Decade of Reform. Armonk, NY: M.E. Sharpe, 1993.
Debt crisis is becoming common and faced by most citizens in Malaysia. Between June 1997 and January 1998 a financial crisis swept like a brush fire through the "tiger economies" of SE Asian. Over the previous decade the SE Asian states of Thailand, Malaysia, Singapore, Indonesia, Hong Kong, and South Korea, had registered some of the most impressive economic growth rates in the world. Their economies had expanded by 6% to 9% per annum compounded, as measured by Gross Domestic Product. This Asian miracle, however, appeared to come to an sudden end in late 1997 when in one country after another, local stock markets and currency markets imploded. When the dust started to settle in January 1998 the stock markets in many of these states had lost over 70% of their value, their currencies had depreciated against the US dollar by a similar amount, and the once proud leaders of these nations had been forced to go cap in hand to the International Monetary Fund (IMF) to beg for a massive financial assistance. (W.L.Hill, n.d.)
Having thrown open its doors to capitalist investment and expanded at a miraculous rate over the past three decades, China has now surpassed Japan to become the second biggest economy in the world. Since the early 1980s, China's economy has metamorphosed from a centrally planned syst...
Warwick J. McKibbin, and Andrew Stoeckel. “The Global Financial Crisis: Causes and Consequences.” Lowy Institute for International Policy 2.09 (2009): 1. PDF file.
Asian financial crisis in 1997 is a good example to demonstrate the globalisation as a single issue in one country will motivate a domino effect on other countries. Since the crisis stared in Thailand because of the fail in banking system, a political upheaval was triggered in South Korea and Indonesia. At the same time, financial centres in New York, London, Hong Kong and Tokyo were also affected in this crisis. During the crisis, global news agencies utilised the Internet and telegraph updating news to their home countries. Such as the Economist, Reuters and the Financial Times which ar...