China has come to the international spotlight in the wake of the East Asian financial crisis for at least two reasons. First, the post-reform Chinese economy resembles remarkably the other East Asian economies. Like Indonesia, Malaysia, Korea, Thailand and Japan, China experienced export-led growth, with a significant expansion in labourintensive exports in the early stage of development. Rapid growth was accompanied by a rapid increase in domestic savings and massive inflow of foreign capital (Perkins 1986; Garnaut 1989). The banking sector dominated financial intermediation and the ratio of non-performing loans was astonishingly high. A natural question to ask is whether will China be the next victim of the crisis (Lardy 1998a; Rudi Dornbusch, 'Is China next?', Financial Times, 4 August 1998). Second, China's economic performance has become the key to the current economic stability of East Asia. During 1997-8, China was the only major economy in the region that managed to sustain significant growth. In particular, maintaining the stability of the renminbi was seen as the last hope in achieving a new equilibrium in the regional currency system and facilitating an early recovery (Garnaut 1998). The Chinese government took up the challenge and made a firm commitment not to devalue the renminbi in the short term. Concerns, however, were frequently expressed about how long China would be able to defend its overvalued currency (Song 1998).