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1 1 (Updated March 3, 1999)

handle is hein.crs/crsaapy0001 and id is 1 raw text is: 98-220 E Updated March 3, 1999 China's Response to the Global Financial Crisis: Implications for U.S. Economic Interests Wayne M. Morrison Specialist in International Trade and Finance Economics Division Summary Since 1997, several East Asian economies (notably Indonesia, Thailand, and South Korea), and since 1998, Russia and Brazil, have experienced significant financial difficulties, including sharp currency depreciations, plunging stock market prices, and declining economic growth. The global financial crisis contributed to a slowdown in the growth of the Chinese economy in 1998, especially its export sector, although it fared better than most of its East Asian neighbors, many of whom fell into recession. However, many analysts have expressed concern that a deepening of the global financial crisis may induce China to devalue its currency, the yuan, in order to stimulate export growth. Such a move could lead to a new destabilizing round of currency devaluations throughout East Asia, which would further depress U.S. exports to the region. In addition, it would make Chinese products cheaper in U.S. markets and thus exacerbate the U.S. trade deficit with China. Another concern is that China might also choose to respond to the financial crisis by putting a hold on its plans to liberalize its economy and lower trade barriers. This could further complicate China's attempt to join the World Trade Organization and further strain U.S.-China economic relations. The Global Financial Crisis and China's Response to Date Since 1997, several East Asian economies, notably South Korea, Thailand, and Indonesia, have experienced significant financial difficulties in their economies, as have Russia and Brazil since 1998. Such difficulties have included substantial currency devaluations (as investors have transferred funds overseas), and significant declines in stock market prices.1 Most of the other East Asian economies, including Japan, Hong Kong, Singapore, the Philippines, and Malaysia have also experienced varying degrees of financial difficulties (falling stock market prices and/or currency depreciation). The global 1For background information on the crisis, see CRS Report RL30012, Global Financial Turmoil: Contagion, Effects, and Policy Responses, by Dick K. Nanto. Updated January 13, 1999. Congressional Research Service oe The Library of Congress CRS Report for Congress Received through the CRS Web

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