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chien tranh tien te (ban tieng anh)

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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

2

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

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