In the mid-1997, international speculators sold voluminously the Thailand Baht, which disrupted the Thai financial system. On July 2 that year, Thailand decided to change the fixed exchange rate into a floating exchange rate, causing devaluation of the Thai money by a big margin, which in tern led to a round of currency devaluation in several other Southeast Asian countries. After October that year, the financial crisis spread to the Republic of Korea and Japan, causing currency devaluation, sharp falls on the stock market and bankruptcy of big companies one after another. In 1998, the crisis continued to spread and deepen. It even affected Russia and some Latin American countries and regions, which resulted in fluctuations on the world exchange market and stock market and even set off political turmoil in some countries.
The Asian financial crisis helped us to see the hidden structural problems amid the rapid economic growth of some of the East Asian countries, errors in their macro policies and defects in their financial systems. At the same time, it made it a pressing task for the international community to reform and improve the international financial system and ensure safe and orderly operation of the international financial market.
Fortunately, China was not directly affected by the crisis and it managed to maintain its financial and economic stability, thanks to the moderate financial policy and a series of measures against financial risks that it took.
To ease off the financial crisis, the Chinese Government adopted a series of pro-active policies. They included:
It actively participated in the IMF-organized aid projects for some Asian countries. In the wake of the financial crisis in 1997, the Chinese Government provided Thailand and other Asian countries with over 4 billion US dollars in aid, within the framework of IMF or through bilateral channels. It offered Indonesia and other countries export credit and emergency medicine given gratis.
The Chinese Government, with a high sense of responsibility, decided not to devaluate its Renminbi in the overall interest of maintaining stability and development in the region. It did so under huge pressure and at a big price. But it contributed considerably to the financial and economic stability and to the development in Asia in particular and the world at large.
While sticking to its non-devaluation policy, the Chinese Government adopted the policy of boosting domestic demand and stimulating economic growth. This policy played an important role in ensuring a healthy and stable economic growth at home, easing the pressure on the Asian economy and leading it into recovery.
China actively participated in and encouraged regional and international financial cooperation together with the relevant parties. President Jiang Zemin put forward a three-point proposal at the Sixth Informal Leadership Meeting of APEC. He proposed to stop the spread of the crisis through enhanced international cooperation, reform and improve the existing international financial system, and respect the choices made by the relevant countries or regions to overcome the financial crisis. Vice President Hu Jingtao stressed at the Second Informal Leadership Meeting among ASEAN, China, Japan and the Republic of Korea (or 9 plus 3) and the meeting between ASEAN and China (or 9 plus 1) in Dec. 1998 that East Asian countries should take an active part in the reform and readjustment of the international financial system. He pointed out that the most pressing task then was to control and monitor the flow of short-term capital. He proposed that East Asian countries should exchange views on financial reform and other macro issues. In this regard, Vice Ministers of Finance and Deputy Governors of the Central Banks of the countries concerned should engage in dialogue within the framework of 9 plus 3. When necessary, an expert group could be set up to study the flow of the short-term capital and specific means to control the flow. This proposal of the Chinese side was well received.