International Spectator

The International Spectator

Volume XXXIII No. 3 (July-September 1998)


China and the Asian Crisis: Pillar of Stability or Next Country at Risk? *
By Marta Dassù


For a series of reasons that will be briefly examined in the first part of this article, China has responded rather effectively to the Asian financial crisis. In particular, the decision by Deng’s successors not to devalue the Chinese currency (RMB) has been seen abroad as a sign that Beijing is a “responsible” and central actor on the regional and international scene. Whilst in 1996 China was seen by many in the region as a potential or emerging threat, the Asian financial crisis quickly reversed previous perceptions. China is now largely seen as an important pillar of regional stability, an essential pillar of Asian stability. In a certain sense, therefore, the current pragmatic leadership, which emerged rather compactly from the 15th Congress of the Chinese Communist Party (September 1997) and the last National People’s Assembly (March 1998), has managed to exploit the collapse of the “Asian economic miracle” to promote China’s image abroad. This objective was facilitated by the dramatic shock wave which hit the Japanese economy in 1997-98 and was symbolically sanctioned by Clinton’s trip to Beijing in the summer of this year.

There can be little doubt that, in the face of the devaluations in Southeast Asia and the recession in Japan, China has adopted a constructive stance aimed on the whole at containing the crisis. The thesis put forward here, though, is more cautious: just as the 1996 perception of China as an emerging threat was vastly exaggerated, the 1998 perception of the country as the pillar or anchor of regional stability is probably overstated or at least premature. The preconditions and instruments that must be in place if China is actually to play such a role should not yet be taken for granted. While the first phase of the crisis stopped at the Chinese border, the medium-term effects on an economy that is in many ways vulnerable and suffers from some of the same problems as the countries hit by the 1997 financial shock should not be underestimated. In the meantime, the most relevant implication of such a reversal of perceptions could well be a “preferential treatment” in favour of China, at the expense of a beleaguered Japan.


A Relatively Protected Country

Some structural and conjunctural elements explain why the financial crisis which started in mid-1997 had only a slight effect on the Chinese economy. The first and most obvious is the partial convertibility of the Chinese currency, a convertibility limited to current accounts and coupled with strict control over capital flows; indeed, the 1997 crisis led Chinese leaders to shelve old projects for complete convertibility of the RMB by the end of the century. The Chinese economy is therefore, de facto, still essentially isolated from the impact of foreign financial shocks.

It should be added that while the financial crisis in countries like Thailand or Indonesia was determined by the brusque withdrawal of speculatory capital and short-term investments in the private sector, in the case of China, foreign capital is composed essentially of medium- and long-term foreign direct investment, predominantly export-oriented.

A further protection for the Chinese economy was its healthy macro-economic performance (a successful soft landing in 1996-97, with approximately 9 percent growth and inflation below 3 percent), and above all, its balance of payments situation, characterised by a substantial and growing surplus in current accounts (which rose from $12 billion in 1996 to more than $40 billion in 1997, the year in which China became the world’s tenth largest trading power). This obviously favoured the expansion of Chinese financial reserves (equal, at the end of 1997, to $140 billion), which not only made it possible to stabilise the Chinese economy in the presence of foreign shock waves, but also to defend the Hong Kong dollar and its pegging to the American dollar. 1

Finally, Chinese has kept its foreign debt under control ($131 billion at the end of 1997), a debt which is mostly long-term and, as demonstrated by various indicators starting with the debt service level (11.8 percent), does not present particular problems. 2


Is China an Economic Anchor?

The foregoing considerations explain why China weathered the 1997 financial crisis so well, but they tell nothing about whether the Chinese economy will be able to avoid the after-effects of a crisis that has progressively affected the real economy and, above all, whether Beijing, as some optimistically hypothesise, will be able to play a leading role as the anchor for regional development. As will be seen shortly, there have been important signs of deflation in the first months of 1998.

What are the requirements needed for a country to serve as the anchor of regional growth and stability? In a comparative European perspective, it turns out that one of the key requirements is for the country to have a sufficiently large internal market and strong enough domestic demand to be able to absorb—and thus sustain—the growth of the rest of the area. As a consequence, the most effective assistance China can extend to its neighbours is to maintain rapid economic growth led by domestic demand rather than by export (on which most of China’s growth in the second half of the nineties has depended).

From this point of view, China’s response to the Asian crisis is certainly interesting: China seems to have understood—and more clearly than in 1994—the limitations of an export-led strategy; and the need to root Chinese growth in the expansion of the internal market, especially at a time of slowdown in exports towards Asian markets. This is the most important implication of the decision not to devalue; a decision followed by the announcement in early 1998 of an ambitious government plan for infrastructures.

There are well-grounded reasons to argue that if China has not yet devalued, it is because it has not—for the time being and unlike in 1994—had real incentives to do so. It has, on the contrary, had continuous and strong disincentives, starting with the effect that devaluation would have on the Hong Kong dollar. 3 Until the end of 1997, the relative decline of exports to Asian countries (especially in low value added sectors, such as textiles) was compensated by faster growth of exports to Europe and the US.

In July 1998, exports grew by 3.5 percent year on year, signaling a recovery from the decline in exports in the first months of the year. 4 However, export growth remains sharply below the pace of last year (20 percent) and some observers still predict a decline in the second half of 1998. 5 If that happens and if the measures for stimulating domestic demand fail, Beijing will be forced to reconsider its initial decisions—especially in case of a further weakening of the yen—undertaking, for example, a moderate devaluation next year. From an economic point of view, a slight adjustment of Chinese exchange rates, projected into 1999, would probably not have the strong negative impact on the other Asian economies that an immediate Chinese devaluation in response to the crisis would have had. The political dimension of the problem is even more important: as seen, the decision not to devalue has been presented and interpreted as a matter of regional “responsibility”, to the point that China’s role in defending Asian monetary stability was explicitly recognised in the Tokyo G-7 document (June 1998). But it also corresponds, as seen above, to China’s specific interests, interests which could change in the face of a more rapid decline in exports. 6

Beijing’s response may turn out to be transitional, rather than structural, if China’s economy in 1998 is sluggish. With declining growth rates and a drastic increase in the unemployment rate (due in part to the reform of state enterprise), the internal debate on economic policy choices would certainly become more heated.

The data relative to the first quarter of 1998, show GDP growth at 7.2 percent (as compared to 8.7 percent in 1997 and the 8 percent officially predicted for 1998). 7 According to some Chinese economists, a less than 6 percent growth would have considerable social repercussions and would probably lead to another pause in the reform of state enterprise (destined to lead to the loss of at least one million jobs per year). In light of this fear of social strains linked to rising unemployment, the estimates of the State Statistical Bureau on the decrease in industrial production are significant; the growth of township collective enterprises also slowed down, contributing to the poor production performance of early 1998 and to deflationary pressure. 8 In brief, the objective of keeping unemployment under control while continuing with the reform of state enterprise, which depends on another crucial restructuring, that of the Chinese banking system, can be achieved only if China can maintain its high economic growth rate (7-8 percent). 9

Given the existing deflationary pressure, engineering the next take-off is going to be more difficult than it was at the beginning of the nineties (when Deng Xiaoping set off an internal debate on the strategy for economic growth with his famous trip to the south). The determination of the new “technocrat” premier, Zhu Rongji, to prevent the risk of deflation which has loomed in the last few months is beyond doubt, but the government’s plan to spend up to $750 billion in fixed assets in the next three years seems rather unrealistic; it is, in any case, unlikely to stimulate the economy unless important structural constraints are removed, for instance, in the housing sector, in which there is both unsatisfied demand and excess supply. For infrastructure investment, the biggest issue will be how to channel private funds into public projects; it should be noted that the state budget was able to finance merely 3 percent of total fixed-assets investment in 1996. 10

In addition, there is the problem of foreign direct investment (FDI), of which China has been the world’s greatest recipient in recent years. The fact that FDI generated approximately 50 percent of Chinese trade in 1997 shows how important access to this source of foreign exchange and advanced technology is (and how dependent Chinese growth is on external factors).

While the link between FDI and trade performance continues to be of central importance (especially in some cases, such as China-Japan relations), forecasts are uncertain. Following the warning signals of 1997, the figures for the first quarter of 1998 are better than expected (contracted foreign investments for the first quarter registered a 10.1 percent increase); 11 but according to some observers, this trend could be transitory (as a result of the diversion of Western investments from Southeast Asia to China) and should progressively feel the impact of the marked decline in the investment capacity of Asian countries, from which 80 percent of FDI destined for China has come in the last decade.

Moreover, some observers contend that China is already suffering from an “over-investment” crisis—just like the one other countries in Asia went through not too long ago. The real problem, therefore, and the key to the future success of the Chinese economy, is to increase efficiency through more rapid and substantial reforms of both state enterprise and the banking system (on paper, this was one of the basic decisions taken in 1997-98 in response to the financial crisis). As Song Ligang argues, only deeper reforms of the financial and industrial system—coupled with the decision to ease monetary policy, kept relatively tight since 1992—will allow China “to avoid the double squeeze of weak domestic demand and a possible deterioration in its external trade environment”. 12


Some Lessons from the Asian Crisis

Having emphasised why the Chinese economic system was sheltered from the financial crisis, it is now time to reflect on whether there are any similarities which make China a part of—and not only an exception in—the Asian crisis. The Chinese economy seems to share a number of weaknesses with other economies in the area. Put schematically, they are: 13

As China’s response to the Asian crisis indicates, Deng’s successors have a clear idea of at least some of these similarities, and the crash drove them to give greater priority to reform of the financial and banking system. 15 Alongside a number of positive lessons, and in particular for reform of the banking system, China might also draw some “defensive” lessons from the Asian crisis. For example, it is not clear to what extent the Korean crisis contributed to reopening debate about the Chinese chaebol model in the field of industrial policy. According to declarations during the spring by Vice Prime Minister Wu Bangguo, the government is aiming to establish fewer large industrial groups (120) than originally planned, but is still convinced that an “adapted” version of the kind of industrial strategy already followed in South Korea remains the best option for China today. 16

Finally, the Asian crisis could slow down China’s entry into the World Trade Organisation (WTO), given that the existing forms of protection managed to shield it. A significant group of influential Chinese economists argue that WTO accession would have disastrous consequences for China’s industry, as entire sectors are not yet able to compete on a global scale. Zhu Rongji repeatedly underlined in the first months of 1998 that China will have to make further progress in domestic economic reforms before it can open its financial markets and services sector to international competition. 17 The pace of the two key reforms (state enterprise and banking) in the coming years will in any case condition the prospects for negotiations with the WTO. There is strong political impetus, however, for its entry and this inevitably generates tension. Apparently, Beijing hopes to exploit its responsible behaviour vis-à-vis the crisis as a bargaining chip to obtain more favourable conditions of access to the organisation. 18 In this context, Clinton’s trip to Beijing did not produce—at least not immediately—any tangible results: the stance of the United States (that is, of a country with an almost $50 million bilateral deficit towards China in 1997) is that, now that China is one of the major trading powers, transitory clauses defining it as a developing country are no longer acceptable, meaning that Beijing will have to satisfy the requirements for membership before entry and that the US will adopt a negotiating approach based on reciprocity.

The European Union has chosen a more flexible approach, letting it be known that, once preliminary conditions are fulfilled (in matters of tariffs and the state monopoly on foreign trade, protection of intellectual property and copyrights), China could enter the WTO, as long as it makes a declarations of intent to satisfy the other requirements according to a set and negotiated timetable. 19 In spite of this greater flexibility in its approach (substantially the willingness to negotiate a transition period), Europe shares the concern that the measures for trade liberalisation undertaken by the Chinese government to date are insufficient. 20 As already seen, the financial crisis will probably further postpone entry. According to Renato Ruggiero, director general of the WTO, the hope is that China can become a member before the end of 1999 - that is, before the launching of a new phase of trade liberalisation, which could make China’s accession even more difficult.


China’s Diplomatic Rise

While the impact of the Asian crisis on China’s economy has, therefore, to be more cautiously assessed, there can be no doubt that the crisis has already clearly favoured China’s image and external prestige. It provided an opportunity to strengthen its regional role and to candidate itself as one of the indispensable poles of the international system emerging from the disorder of the post-Cold War.

It must be recalled that, from the Chinese point of view, one of the consequences of the end of bipolarism has been the increased importance of the regional dimension of its foreign policy. More precisely, the conviction has taken root that a greater regional role will have a positive effect on China’s rise as a global power. 21 The nomination of a diplomat with an Asian background as the new foreign minister (Tang Jiaxun, former ambassador to Japan), as well as Tang’s first two visits abroad (Indonesia and Singapore) are rather indicative of this new “regional” orientation in Chinese foreign policy.

In this light, the financial crash posed something of a dilemma for Beijing between its interest in stabilising a situation full of risks (given the interdependence between the development prospects of the Chinese and other Asian economies) and its interest in exploiting the crisis to its own advantage, increasing its weight in the Asian balance of power. By deciding to pay the cost (of not devaluing) in return for considerable political and diplomatic benefits, China solved the dilemma very ably, and this choice has been confirmed by a number of subsequent decisions.

A good example of China’s new and “constructive” approach is its participation, for the first time, in the bail-out programmes of the International Monetary Fund (IMF) . This is rather significant in that, during previous crises affecting Asian countries, China stood aloof, leaving Japan to coordinate responses with Washington. However, Chinese assistance to troubled Asian economies (according to official declarations, a total of about $4 billion, including both IMF bail-out plans and bilateral channels) is dwarfed by similar Japanese aid to the region (amounting to more than $19 billion), even though Japan has been accused, obviously as a result of the domestic economic crisis and the fall of the yen, of not having taken sufficient measures to stabilise the area.

On other occasions, China has successfully played what can be defined as “its negative power” card. This has been particularly true regarding Taiwan, which remains, from the Chinese point of view, the last major unsolved national problem after the return of Hong Kong. On the whole, Beijing has achieved the goal of increasingly isolating Taiwan, preventing it from using its stable performance during the Asian financial crisis to prop up its own profile. China has for instance refused Taipei’s proposal to hold jointly with Beijing a regional forum to discuss solutions to Asia’s economic troubles. Basically, both parties have tried to play the same card—to use the financial crisis to strengthen their own political and diplomatic status, but the card has ultimately favoured China, as demonstrated by the nervousness generated in Taiwan by Clinton’s trip to Beijing. 22 On the other hand, the financial crisis also strengthened the economic incentives for bilateral détente between Taipei and Beijing, leading to the reopening of the indirect dialogue which had been broken off in 1996.

Another example of new regional activism was the Chinese decision to host in Beijing in December 1977 direct talks between the two Koreas (while the four-party negotiations, in which China participates directly, are stalled). While the meeting ended with no appreciable result, it became clear that the idea of putting an end to the old division (which the financial crisis has complicated, given the costs that a German-type reunification would have for the South Korean economy, already in serious difficulty) was not among Beijing’s geopolitical interests. Nor does China hope for the rise of a new regional power in Eastern Asia, such as a reunified Korea could represent. Finally, the traumatic implosion of the North Korean regime, with conflictual external repercussions would certainly not be in the interests of China, which has traditionally been close to Pyongyang, but is increasingly interested in economic relations with Seoul. From the Chinese point of view, a slightly adjusted status quo, kept under control (for example, as regards the functioning of the 1994 agreement on North Korea’s renunciation of nuclear weapons) is the lesser evil.

In Southeast Asia, China’s evolving attitude toward Indonesia is symbolically a very important development. In a move to consolidate its new image and role as a benevolent power, China has both decided to support the IMF aid package; and to reassure Djakarta that it regards recent riots in Indonesia that targeted the Chinese minority as an internal matter for Indonesia to handle. This is a very delicate issue for China, especially given the precedents in the mid-sixties, and a sensitive one to handle: by doing too much, Beijing could be accused of interfering; by doing too little, it could be seen as too timid and passive. Thus, China is called upon to walk a fine line—which will narrow if the issue of the ethnic Chinese flares.

From another viewpoint, the Indonesian crisis is seriously weakening the Association of South East Asian Nations (ASEAN) and prospects for regionalism, leaving more room open for China’s influence in the region. 23

China also received an indirect boost to its growing diplomacy from India’s nuclear tests. In this case, however, the implications are more difficult to assess. It is true that India’s decision offered China a new chance to gain diplomatic influence (both because India claimed that it had to face a possible military threat from China and because Pakistan tried to draw the Chinese into the diplomatic handling of the crisis). The signing in Beijing during Clinton’s visit to China of a joint communiqué inviting India and Pakistan to adhere to the Comprehensive Test Ban Treaty (CTBT), abandoning their nuclear programmes, was a clear success for China, especially in light of past American allegations concerning China’s illegal transfers of sensitive technologies to Pakistan. On the other hand, ambiguities remain on the Chinese side: although China’s adhesion to the Missile Technology Control Regime (MTCR) was also discussed by Clinton in Beijing, China is still reluctant to join it. Finally, in a geopolitical perspective, the increase in tensions on the Indian sub-continent reveals a flank on which China is in any case exposed and which it has historically had difficulty in managing.

In broader terms, the financial crisis has set back in motion all three sides of the China-US-Japan triangle: the dynamics of which continue to shape the region’s security. During Clinton’s visit to Beijing (the first by an American president since 1989), China obtained a new normalization of relations with Washington at practically no cost—so much so that some American analysts talk about China as a sort of American “pet project”, compared to the relatively harsh political treatment to which Russia has de facto been subjected with NATO enlargement. Moreover, and perhaps more significantly, China has achieved American recognition of the need to involve Beijing constructively, as a strategic partner, in the management of Asian problems and, more generally, in the management of the international system.

It would be exaggerated to say that the axis of the security triangle has shifted from Washington-Tokyo to Washington-Beijing, the US confirmed and strengthened its defensive alliance with Tokyo in 1997-98 along lines strongly criticised by Beijing (for example, the active contribution of Japanese forces in the management of regional crises). 24 More simply, relations between the US and Japan are based on bilateral security agreements and on links between two economies of the G-7. But certainly, the way in which China pressed the United States to intervene in support of the yen (underlining the competitive pressures on its currency) will be remembered as jolting the balance among the three legs of the triangle. In doing so, Beijing asserted its weight in the management of Asian crises, accepted de facto America’s unique role as Asia’s “Pacific hegemon”—as long as this does not undermine the status quo with Taiwan—and underlined Japan’s inability to solve the problem itself.

China’s acceptance of America’s central role in Asia, symmetrical to America’s acknowledgement of China’s central role on the continent, has to be seen, therefore, as one of the principle political implications of the crisis. But for the moment, China is still a “candidate great power” rather than a great power, and its priorities are clearly aimed at economic development. It is not clear how China views the future role of the US in the region, or rather, how the American role will be seen by next century’s China—both in the event that China’s economic development is successful, making it more assertive abroad, or alternatively, that China undergoes a serious economic, political and social crisis with all its inevitable external implications.

A high degree of ambivalence also continues to characterise relations between China and Japan. Beijing criticises Tokyo—with a certain paternalist attitude—for not doing enough to stimulate its own economy. At the same time, it has no desire to see Tokyo take on a true regional leadership role and, in fact, Beijing was not truly supportive of Japan’s initial proposals concerning an Asian stabilisation fund as an alternative to the IMF’s overriding role. But even if the Asian crisis has favoured China to the detriment of Japan, there continues to be a substantial gap—which the 1997-98 shock in some way overshadowed—between the China’s developing economy and that of the world’s second greatest economic power. These distorted perceptions of the relative weight of China and Japan are one of the interesting consequences of the Asian crisis. Certainly a part of the international prestige now accorded China is, in effect, the consequence of Japan’s loss of it; in other words, China’s diplomatic rise is the flipside of Japan’s rapid decline. 25 China has also more or less openly opposed regional solutions to the financial crisis within APEC. The net effect is that China has played in favor of US-sponsored management of the crisis—a choice that has allowed China to gain new marks in the relationship with Washington and, at the same time, stop the initiatives of its regional competitors.

In conclusion, China’s approach to regionalism is still influenced by a degree of diffidence vis-à-vis other important actors. An increased level of stability in the region might result, however, only from a kind of Sino-Japanese “condominium”, with an American external guarantee. This would imply overcoming bilateral diffidence, achieving a higher degree of economic integration between the two Asian countries, and, on the part of the US, coming to the conclusion that such a balance of power would not jeopardise its own interests.


After the Crisis?

Summing up, the Asian financial crisis has certainly favoured China’s diplomatic rise. Compared to 1996, China in 1998 is perceived as a key factor of stability. In reality, Beijing is still not able to play a leading regional role, if not as a consequence of the objective importance of what English politologists call “negative” policies (the choice not to devalue). At the same time, the most serious challenges still facing China (further transformation of the economic system) have certainly not been facilitated as a consequence of the crisis.

From various angles, and given the still prevailing uncertainty over the evolution of the financial and economic crisis, the balance of power in Asia is entering a transition phase. In this phase, China is showing an overriding interest in reducing external tensions (in order to focus on economic priorities), is apparently willing to accept a modicum of multilateralism in the management of regional issues and is proposing itself as a responsible actor.

The Chinese agenda still is and will in the foreseeable future be dominated by the challenge of economic modernisation: in general terms, China’s response to the Asian financial crisis has confirmed to what extent China is now conscious of the growing interdependence between its own economic prospects and those of the other Asian-Pacific economies. This simple fact goes far in explaining the current guidelines of China’s Asian policy—which has not prevented Beijing from exploiting the crisis to obtain diplomatic advantages in a classic exercise of opportunistic diplomacy.

Long-term political and security scenarios, however, remain uncertain. While China is now focused on domestic priorities—and therefore needs external stability—the next century will see a sea-change in the relationship between China and the region. Assuming that the optimistic scenarios of successful modernisation materialise, and that China becomes a strong economic power, it is not clear how China, by definition a “revisionist” power, will tend to give its new economic power a foreign policy projection. If they do not, that is in the event of total or partial failure of the strategy of economic reform, China could undergo an enormous political and social crisis and the repercussions of its internal troubles could easily spill across the region (refugees, recession, etc.). In both scenarios, Chinese nationalism, seen by most analysts as the ideological substitute for the old communist doctrine, will be part of the regional equation—respectively as a manifestation of its new self-confidence or of its new fragility, and therefore with different implications for Asian security. 26

This leads to a final comment on the issue of the Chinese political system. The Asian economic crisis has combined with and translated into (most evidently in Indonesia) a crisis of political systems. While the legitimation of authoritarian leaders was long based on their ability to ensure rapid growth rates, the 1997-98 shock highlighted the frailty of that equation. As a consequence, Chinese leaders have now partially lost what they considered a sort of regional ideological background (the “neo-authoritarian” model), shaped by the Asian values doctrine, to which they had implicitly referred in recent years. They will now have to ask themselves for how long they will be able to use economic performance to maintain political control. From this perspective, the fallout of the Asian crisis is certainly much more problematic for China to handle—unless the issue of political reform is seriously put on the domestic agenda.

The only possible solution for such uncertain scenarios, it may be claimed, is to anchor China progressively to ever more binding regional and international institutions in the economic and security fields. This is complicated by the weakness of regional institutions, but while their weakness was confirmed by the Asian crisis, the latter also provided important incentives for building new regional coordination mechanisms. In the meantime, the fragility of Asian regionalism leaves the US center stage and theoretically offers new responsibilities to the European Union, which has till now largely remained on the sidelines of the new Asian political dynamics.


Marta Dassù is Director of the Centro Studi di Politica Internazionale (CeSPI).



*: This article is a revised version of the author’s presentation to the conference “East Asia’s Economic Crisis and Regional Stability”, organised in Hong Kong by the Financial Times and the International Institute for Strategic Studies (IISS), 28-29 May 1998. The Italian version of this article is to appear in Politica Internazionale, vol. 26, no. 3/4, 1998.  Back.

Note 1: Source for all figures in this paragraph: China State Statistic Bureau, 1997.  Back.

Note 2: Song Ligang, China and the Asian Financial Crisis (Australian National University, mimeo, May 1998).  Back.

Note 3: Another incentive not to devalue is the composition of Chinese export, quite different from that of ASEAN countries, with the exception of Indonesia and South Korea, and the interest in keeping the import price of raw materials under control.  Back.

Note 4: Financial Times, 11 August 1998.  Back.

Note 5: J. Kynge and J. Riding, “Is China Asia’s Next Domino?”, Financial Times, 17 June 1998, p. 13.  Back.

Note 6: These are the conclusions of the important paper attributed to Yi Gang (leading economist of the People’s Bank of China) and Song Ligang (economist from the Australian National University), which underline that China has evident incentives (both economic and political) not to devalue, but that it cannot avoid adjusting its exchange rate, albeit in a gradual and limited manner, in case of a marked decline in exports and the continuing weakness of internal demand. Given the uproar caused by this thesis, Yi Gang denied authorship of the paper, which is now attributed only to Song Ligang (see footnote 2). The paper also states that gradual adjustment of the Chinese exchange rate would not produce a new round of competitive devaluations, since the Asian currencies hit by the crisis have already fallen to exceptionally low levels and will tend to appreciate in the next two to three years.  Back.

Note 7: China State Statistics Bureau, 1998.  Back.

Note 8: Ibid.  Back.

Note 9: Cf. Fan Gang, “Impacts of Asia’s Economic Shakeout on China’s Reform and Development” in M. Dassù (ed.) La Cina e la crisi asiatica (Milan: Guerini Ed., forthcoming).  Back.

Note 10: Song Ligang, China and the Asian Financial Crisis.  Back.

Note 11: China State Statistics Bureau, 1998.  Back.

Note 12: Song Ligang, China and the Asian Financial Crisis.  Back.

Note 13: W. Van Kemenade, “The Impact of the Asian Financial Crisis on China, Hong Kong and Taiwan”. Paper presented at the Shanghai Conference on the same subject, 16 March 1998.  Back.

Note 14: According to statements by the governor of the People’s Bank of China, Dai Xianglong, the share of non-performing loans in the portfolios of the four largest state banks had increased from 20% at the end of 1994 to 25% by the end of 1997. See N. Lardy, “China and the Asian Contagion”, Foreign Affairs, vol. 77, no. 4, July/August 1998.  Back.

Note 15: See “Can China Avert Crisis?”, Business Week, 16 March 1998.  Back.

Note 16: Interview by the author, April 1998. It has to be considered that according to many estimates, it will take China twenty years to reach the per capita income level of South Korea or Taiwan. See D. H. Perkins, “China’s Economic Growth: Mid-Term Scenarios” in Dassù, La Cina e la crisi asiatica.  Back.

Note 17: According to Nicholas Lardy, it can be argued that a premature liberalisation of domestic financial markets could trigger a risky domestic crisis. “China and the Asian Contagion”.  Back.

Note 18: ”L’emergenza Far East”, Sole-24 Ore, 21 June 1998, p. 3.  Back.

Note 19: M. Eglin, “China’s entry into the WTO with a little help from the EU”, International Affairs, vol. 73, no. 3, July 1997. The difference in the approaches of the US and the EU—differences which seem to be diminishing with time—also depends on the fact that China benefits from the EU’s system of generalised preferences and is de facto included among developing countries.  Back.

Note 20: L. Brittan, “Engaging China”, speech held in London during the annual conference of the EU-China Academic Network, 2 February 1998.  Back.

Note 21: S. S. Kim, “China as a Great Power”, Current History, September 1997.  Back.

Note 22: The American president did not make any new concessions to the People’s Republic on this key point in the bilateral dispute; but by confirming the “one China policy”, Clinton de facto brought to an end the spiral of tension triggered in 1995-96 after Lee Teng Hui’s visit to the US.  Back.

Note 23: P. Dibb, D. Hale and P. Prince, “The Strategic Implications of Asia’s Economic Crisis”, Survival, Summer 1998.  Back.

Note 24: On this point and for an overall analysis of Chinese perceptions of the new Asian balance of power (the role of the US, US-Japan and US-China relations), see the essays contained in the annual Study Report on China’s Foreign Relations in 1997-98 (Beijing: Strategy and Management, 1998).  Back.

Note 25: R. B. Zoellick, “The Political Implications of the East Asian Crisis”. Paper presented to the conference “East Asia in Crisis”, Seattle, Washington, 9-10 June 1998.  Back.

Note 26: For a historical perspective, see M. Palma, “Un nuovo nazionalismo cinese?”, Note e ricerche (CeSPI), no. 53, April 1997.  Back.