ABSTRACT
The Asian financial crisis had a profound effect on China. This is despite its economy largely avoiding the hardship that was inflicted by the Asian financial crisis on many other Asian countries. The Chinese economy still managed to grow at 7.8 percent in 1998 and 7 percent in 1999. The effect o f the crisis on the immediate economy, however, is real. Exports and foreign investment to China were adversely affected. But the long-term significance o f the crisis for China is its impact on the cognition o f Chinese political leaders and state and party bureaucrats as to the appropriate paradigm for economic reform. The crisis devastated some Asian economies that not so long ago were the darlings o f Western investors and had received high marks from the IMF for their macroeconomic management. The political fallout from the crisis has brought down a longstanding political leader in Indonesia (Suharto) and has weakened another in Malaysia (Mahathir). The economic and political fallout from the crisis has reinforced Chinese leaders’ recent conversion to radical reform. More importantly, it has caused the bureaucracy to rethink and reshape their approach to reform, and secured their vital support for the successful implementation o f radical reform.
