China's Response to the Global Financial Crisis: Implications for U.S. Economic Interests


 

Publication Date: March 1999

Publisher: Library of Congress. Congressional Research Service

Author(s):

Research Area: Government; Trade

Type:

Coverage: China

Abstract:

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.