The Economies of China, Taiwan and Hong Kong Since the Asian Crisis

Abstract

Analysis of the financial crisis in East Asia has focussed on the most-affected East Asian economies, namely: Thailand, South Korea, Indonesia, Malaysia, and to a lesser extent the Philippines. However, these economies account for less than 15 percent of the GDP of East Asia. Japan, which accounts for over 60 percent of regional GDP, has its own unique tale with implications for understanding of the crisis, and so does the grouping of China, Taiwan and Hong Kong, which accounts for more than 20 percent of the regional economy. The experiences of these latter three economies provide lessons learned from the crisis mostly in terms of things that did not happen: they did not experience a crisis because of current account surpluses coupled with vast foreign currency reserve holdings (all three); robust exchange rate regimes (Hong Kong in particular); and/or cautious capital market liberalization (e.g., China). However, when these economies move from the background to the Asian Crisis story into the foreground, new perspectives open up. These economies, all three of which are integrally part of the Asian Miracle story, have historically had considerable volatility in their growth rates (including sharp decelerations on several occasions), something which is masked in the high average growth rates that are usually cited. Moreover, their experiences during the past two years defy easy reconciliation in terms of their own inter-relationships or in terms of the crisis story of capital market turbulence and financial fragility. This argues for caution in assigning causes for the crisis, in generalizing the story of the crisis economies to East Asia as a whole, and in linking this debate to the earlier Asian Miracle debate.

Keywords: Asian Crisis, China, Hong Kong, Taiwan

JEL Classification: E60, F00