ABSTRACT
During late summer and fall 1997 a financial typhoon struck Asia. The cause was the financial weakness of a number of countries—including Thailand, Indonesia, Malaysia, the Philippines, and South Korea—that had fixed currencies to the US dollar and had allowed current account balances and net external asset balances to fall deeply into deficit. Throughout the 1990s China has managed its debt service carefully, with the proportion of short-term debt generally remaining below fifteen percent of total debt. A difference between China and the crisis countries—and more important, of the insulation of the Chinese financial system—is experience in the foreign exchange market. The Renminbi (RMB) is not freely convertible for capital account transactions. The specific approval of the State Administration of Foreign Exchange is required before any RMB can be sold or bought for foreign currency if the transaction is not for settlement of a trade or service transaction.
