How the West Created and China Survived the Global Financial Crisis
Publication Year: 2011
Published by: Hong Kong University Press, HKU
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It would be hard to find a better vantage point from which to survey the international financial crisis of 2007–09 than Hong Kong. The unparalleled global economic growth that preceded the disaster had followed three decades of a worldwide trend towards the liberalisation of trade and finance at both the national and international levels. Protectionism...
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I am happy to acknowledge the considerable assistance from the Hong Kong Institute for Monetary Research (HKIMR) towards the research on which this book is based. This included the award of research fellowships in 2009 and 2011 and publication of three Working Papers which are used extensively in the chapters that follow...
Introduction — Reluctant Regulators
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The crisis that overtook the world’s financial markets in 2007 was a dis- aster that ought not to have occurred. Never had the defences against worldwide financial instability and global recession seemed so strong. The world economy was enjoying both rapid economic expansion and a general freedom from inflation. This achievement had reinforced...
1. Global Crisis — Why Regulators Trust Financial Markets
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The financial crisis that struck in 2007 was not the result of a downturn in either national business cycles or the international economy. The defaults in the United States sub-prime mortgage market that triggered the crisis were a shock that ‘was by global financial standards rather modest’, and it followed a decade of ‘seeming robustness’...
2. Fatal Decisions — Washington and London’s Deliberate Mistakes
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The most serious accusation against the officials who presided over monetary affairs but failed to prevent the global crash is that they repeatedly ignored evidence of impending disaster...
3. China — Reforms vs Regulation
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China was not supposed to fall victim to the international financial crisis. On the contrary, there was a widespread expectation that ‘it would be an indispensable partner — just conceivably a leader — in hauling the world out of trouble’.1 Although the Chinese government generally discouraged suggestions that the nation could expect to emerge completely unscathed, Prime Minister Wen Jiabao declared himself confident that...
4. China’s Painful Decisions — Politics in Command
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The global financial crisis began with misguided decisions in Washington and London that had catastrophic consequences worldwide. The policy makers stand accused of failing disastrously to recognise there were limits to the virtues of lightly regulated markets and to the efficacy of moral hazard. China’s experience of financial modernisation, by contrast, represents the case for the defence in assessing the merits of the...
5. Hong Kong — From Scandals to Stability
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As a remote and indefensible British colony perched on the edge of China which did not recognise London’s right to rule, Hong Kong was a political anachronism whose survival was always at risk. Its economic strategy was also a relic from the 19th century: free trade and no import or currency restrictions; low taxes and small government; negligible...
Conclusions — Resisting Reforms
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The international financial crisis of 2007–09 was arguably the worst ‘in the two hundred year history of the modern capitalist system’.1 A truly global phenomenon, it ‘unfolded in an environment where financial institutions and other investors were excessively optimistic about asset prices and risk’, the IMF has reported. ‘Overall banking system leverage’ ...
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Page Count: 224
Publication Year: 2011