ABSTRACT
The Chinese government was deeply nervous about the possibility that the crisis in Guangdong’s financial institutions would spread to other parts of the Chinese financial system. The most immediate and obvious threat of contagion was to the other international trust and investment companies and the red chip companies. There was a serious threat of contagion for the whole country’s financial institutions. However, the fact that the renminbi was not convertible on the capital account did not mean that China escaped the risk of financial contagion from the Asian Financial Crisis. Absence of full convertibility was a necessary, but not a sufficient, condition for avoiding the possibility of contagion. The central government was well aware of the potential contagion from the Guangdong crisis to the much wider problems of the non-bank financial institutions across the country.
