IV:Innovation and Adaptation: China's Strategic Responses to Challenges
The 1997 Asian financial crisis severely impacted many of China's neighbors, but China emerged relatively unscathed due to its closed capital account and fixed exchange rate. However, China did not ignore the crisis—— it actively taken measures to prevent its spread, leveraging the crisis to promote regional interests.
Domestically, China implemented expansionary monetary and fiscal policies to sustain economic growth as export demand fell across the region. The People's Bank of China cut interest rate, increased money supply, and lowered reserve requirements for banks to encourage lending. The chinese government also has made the decision not to devalue the Chinese yuan. In order to shield China from the impacts of crises and ensure steady economic growth domestically, the government has further increased investment in infrastructure spending.
Internationally, China provided pragmatic support to affected couuntries through financial assistance. It contributed to an IMF support package for Thailand and bought yen bonds to help stabilize Japan's currency. This helped portray China as a resonsible shakeholder in regional stability. China has provided assistance totaling over $4 billion to countries such as Indonesia and Thailand, gaining valuable regional influence.
In summery, prudent domestic policies and pragmatic diplomacy allowed China to advance its intersets amid the 1997 Asian financial crisis, foreshadowing its critical role in Asian economic affairs.
After China join the World Trade Organization, various industries will face fierce international competition, and the effectiveness of capital controls may diminish. Without proper control, the vulnerability of the banking and corporate sectors could ultimately jeopardize fiscal sustainability and economic growth. Therefore to insulate itself from future crises, China still needs to address these weaknesses.
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