Previous Page of 19Next Page

chien tranh tien te (ban tieng anh)

spinner.gif

WORKING PAPER NO. 45 

CHINESE MERCANTILISM: 

CURRENCY WARS AND HOW THE EAST WAS LOST 

SURJIT S. BHALLA 

JULY, 1998 

INDIAN COUNCIL FOR RESEARCH ON INTERNATIONAL ECONOMIC RELATIONS 

CORE-6A, 4 

FLOOR, INDIA HABITAT CENTRE, LODI ROAD, NEW DLEHI-110 003 

TH 

 

Foreword 

The Asian financial crisis has generated a lot of research, analysis and debate. 

The exact causes of the crisis are not firmly established, although various 

hypotheses have been offered. This paper presents one view of the genesis of 

the East Asian crisis. Several explanations are examined: managed exchange 

rates, over and undervalued currencies, crony capitalism, asset bubbles, 

Japanese devaluation, or "too much" capital account liberalization. 

A large part of the analysis centers around the proposition that the regime of 

managed exchange rates was at the core of the problem. In addition, the paper 

offers an additional contributory cause of the crisis - China's mercantilist policy. 

The role of the international system in allowing China to devalue its currency (by 

over 50 percent), despite burgeoning trade surpluses, is also addressed. The 

paper also explores the question of whether the Chinese economy needed any 

devaluation in the early nineties. 

I have no doubt that this paper will provoke debate and contribute to a better 

understanding of an issue which is occupying the minds of most policy makers 

around the world. 

Isher Judge Ahluwalia 

Director & Chief Executive 

ICRIER, New Delhi 

 

Table Of Contents 

Foreword......................................................................................................................... 2 

Table Of Contents ........................................................................................................... 3 

CHINESE MERCANTILISM : ....................................................................................... 4 

CURRENCY WARS AND HOW THE EAST WAS LOST ............................................ 4 

1. INTRODUCTION................................................................................................. 4 

2. CHINA, DEVALUATION, AND MERCANTILISM - SEEDS OF A CRISIS ...... 6 

a. The Data ............................................................................................................ 7 

b. The Evidence..................................................................................................... 8 

c. Genesis of the Crisis - Did China need to devalue the yuan in 1991-93 ?............ 8 

d. The Importance of Chinese Devaluation ............................................................ 9 

(i) China vs. Greater China data...................................................................... 10 

(ii) Export and Import data............................................................................... 11 

(iii) The counter-factual ................................................................................... 12 

e. Summarizing the Macro Evidence.................................................................... 13 

f. The Micro Evidence ......................................................................................... 13 

g. Did Devaluation Hurt Chinese Imports (and Asian Exports) ?.......................... 14 

h. Political Economy of Trade Surpluses ............................................................. 14 

i. Mercantilism defined ........................................................................................ 14 

j. Mercantilism Index says YES ........................................................................... 15 

k. Why Can't All Countries be Mercantilist ? ...................................................... 15 

3. ALTERNATIVE EXPLANATIONS OF THE CAUSES..................................... 15 

a. Did Japan Devaluation Cause the Crisis ? ........................................................ 15 

b. Did Capital Account Liberalization cause the problem ? .................................. 16 

c. Is Capital Account Liberalization not good for LDCs ? .................................... 17 

d. Crony Capitalism and Non-Performing Assets of Banks .................................. 18 

e. Equity and Property Markets............................................................................ 19 

f. The perverse role of fiscal surpluses ................................................................. 19 

4. WHAT DID HAPPEN ? ...................................................................................... 20

Previous Page of 19Next Page

Comments & Reviews

Login or Facebook Sign in with Twitter
library_icon_grey.png Add share_icon_grey.png Share

Who's Reading

Recommended