The widely-held view of the Asian Financial Crisis is that it had no substantial impact on China. In fact, the country was far more vulnerable than most people realized, due to the high possibility of financial contagion entering the system from Hong Kong through Guangdong province. This book analyzes the severe policy challenge that it presented for China’s leaders. The crisis in Guangdong’s financial institutions provided a forewarning of the difficulties that lay ahead as China’s integration with the global financial system deepened. The experience of Guangdong in the Asian Financial Crisis provided a profound lesson for China’s policy-makers as they planned the country’s strategy for financial reform in the following years. China was able to avoid disaster by astute and difficult policy choices, in the face of fierce pressure from outside the country, as well as from different domestic interests at many different levels.
List of Tables Preface Introduction Part 1. The challenge: the threat of forest fire 1. Introduction2. Guangdong in the 1990sCentral-local relationsReform and opening upInternational tradeCapital flowsReal estateEmployment and standard of livingPublic orderSmuggling Criminal behaviour among government and Party officials3. Linkages between Hong Kong and GuangdongRelationship between internal and external capital flowsRed chips International trust and investment companies (ITICs) Other ‘window companies’Employment and industrial structure4. Hong Kong in the Asian Financial Crisis5. Guangdong in the Asian Financial Crisis6. The threat of contagion for China’s financial system7. Conclusion Part 2. The response: three steps (san bu zou) to control the fire 1. Introduction2. The first step: bankruptcy of Guangdong International Trust and InvestmentCorporation (GITIC)What was GITIC?Mounting pressure of insolvency during the Asian Financial CrisisFrom closure to bankruptcyBankruptcyWhat kind of firm was GITIC?Business behaviorGovernment monitoringCriminality 3. The second step: restructuring Guangdong Enterprises (GDE)Establishment and growth of GDEStructure of GDEGuangdong Investments Ltd (GDI)GuangnanGDE on the eve of the Asian Financial CrisisThe arrival of the crisis for GDEThe decision to restructure GDEThe restructuring processWhat kind of firm was GDE?Business structureBusiness behaviorGovernment monitoringDid GDE’s restructuring change it into a real firm?CriminalityChina’s Phoenix 4. The third step: cleaning up the local financial institutions IntroductionThe spreading fireEstablishing the battle planThe ‘lightning attack’Trust and investment companiesUrban credit cooperativesUCCs: the case of ShantouRural financial institutionsNational state-owned banks, local financial institutions and Hong Kong5. Conclusion: the achievement of ‘cutting the trees to save the forest’ Postscript. Finance and the real economy: China and the West since the Asian Financial Crisis IntroductionThe WestChinaInteraction between China and the WestFragile international financial system Bibliography