ABSTRACT
The Asian Financial Crisis (AFC) presented a major challenge to Chinese policy- makers. Within China, central policy-makers were deeply worried about the insolvency of the huge number of local non-bank financial institutions, with those in Guangdong in the front line. China’s policy-makers were deeply apprehensive that the contagion might spread from the non-bank financial institutions to the main banks, arguably the most fragile in East Asia. The challenge to Chinese policy-making was all the greater because of the speed with which the AFC unfolded, and the pace at which the different stages of its development took place. The Chinese government had only limited means either to control the amount of borrowing undertaken by its own firms once they had ‘escaped’ to Hong Kong, or to control the purposes to which the huge borrowings were put. The challenges for China’s policy-makers were made even more complex because the full extent of the risks was unknown.
