Introduction

The 1997 Asian Financial Crisis had an adverse impact on countries like South Korea, Thailand and Indonesia, and especially exposed the serious problems in their banking systems. China was not engulfed in this crisis and maintained relatively sound economic performance. The frequently discussed contributing factors included the inconvertible Chinese currency under the capital account, a current account surplus throughout most of the 1990s, the dominance of foreign direct investment and long-term debt in total capital inflows, and the world’s second largest foreign exchange reserves (Lardy 1998a).