China: how to resist currency attacks during the Asian economic crisis

Why China did not suffer any great pain with the Asian Economic Crisis of the late 1990s and now the Atlantic Economic Crisis that began in 2008? The more basic answer is that it was due to the reform and opening up since 1978 (which has its own agenda and is not overly beholden to international patterns) and its attendant socialist market economy. The specific historical reason is as follows.

As the currencies in South-East Asia plummetted, and as Moody’s threatened to downgrade the credit ratings of China and Hong Kong, the government refused to devalue. Why? One reason put forward was that China was thereby helping the struggling Asian economies to get back on their feet, since their exports were now considerable cheaper. Another reason is that the government was keen to block currency traders and manipulators from attacking its own banks.

Here the successful defence of Hong Kong and China shows how such a policy works. Many Asian countries were attacked by manipulators (George Soros was at the forefront), forcing the central banks to use their reserves, usually in US dollars, and when they were depleted, to devalue and then be forced to follow the infamous harsh measures of the World Bank and IMF. In August 1997, just after Hong Kong was finally returned to China under the ‘one country, two systems’ policy, Hong Kong was itself attacked. China immediately pledged its then considerable reserves of $140 billion (now much higher) to resist. Hong Kong threw in its own $98 billion. The result: after six weeks the attack was called off. The Monetary Authority of Hong Kong, in coalition with the Chinese central bank, had used about $30 billion to defend the Hong Kong dollar. Since that dollar had risen by $0.02, the gain was about $600 million.

As Adrian Chan concludes: ‘This ability of China’s new socialists to take advantage of the contradictions of the capitalists would probably have been cheered on by Mao’ (Chinese Marxism, p. 200).


8 thoughts on “China: how to resist currency attacks during the Asian economic crisis

  1. China is indeed acting in its own interest, and it shouldn’t be expected to act any differently. China’s refusal to allow its currency to fully float and to intervene in foreign-exchange markets does provide stability, as you wrote above. But we might ask: Who’s interest within China?

    I am not at all sure that Mao would have appreciated the capitalist exploitation within China. China is a capitalist country; for me that discussion reached a resolution some time ago. The Chinese economy is based on sweatshops, the immiseration of the countryside propelling a steady stream of farmers into the cities to work horrifically long hours under inhuman conditions for pay that averages about 5% of what an average U.S. worker makes. Western multi-national corporations are reaping huge benefits from this arrangement. The family members of party members are reaping huge benefits from this arrangements. The sweatshops workers are not. The people in the countryside are not.

    China is a capitalist country that has been able to take advantage of the contradictions within capitalism to rapidly leverage itself into a position where it can freely act in its own interests rather than be beholden to the advanced capitalist powers as all other countries are. If that leverage is simply in the service of accelerating capitalist exploitation, is that a reason to cheer? Or do we simply have a new player in the world of capitalist competition?

    1. Not an unexpected response, for that approach is typical of both hand-wringing liberals and of what is called ideal or romantic Marxism (with not a little ethnocentrism, as Chan points out): the perfect revolution is yet to come. Therefore all the successful revolutions thus far – all in the ‘east’ and not in overdeveloped capitalist economies – simply don’t count as sources of insight.

      Apart from that, the facts don’t support your contentions.

    2. Oh dear, yet another version of the pre-1970s western assessment of the Russian revolution as a palace coup by a bunch of crazed revolutionaries who imposed their will on the unwilling masses.

      But here’s a teaser with a more serious twist: did not Marx argue, and a goodly number of communists since, that capitalist social relations actually restrict the full realisation of the productive forces of capitalism? Witness the dreadful technologies we have with built-in obsolescence. Under communism, however, those productive forces are unleashed.

  2. This is a very standard and banal narrative, which may be called a ‘fall narrative’ (see Genesis 2-3): once upon a time things were glorious, or at least better than now, but for some reason they took a turn for the worse and betrayed all that was good.

    In China’s case, Yermakov’s observation is pertinent: they are seeking the correct path to the unknown. I am willing to give them the benefit of the doubt here, since what they are trying has not been attempted before. The inconvenient fact is that it is not ‘full integration with capitalism’, as even the most cursory investigation reveals – and significant discussion with people in China. The best way to describe this is in terms of a focus/field approach to politics and economics, which sits askew the assumed and falsely universalised categories many of us are accustomed to use.

    Of course, there are plenty of traps and mistakes both made and to be made. Deploying capitalist economic patterns is indeed playing with fire, as the Russians found with the NEP. And many Chinese Marxists are the first to point this out. At the same time, out of the many places in which have journeyed, China is the most communist I have encountered. If they can screw the USA at their own game, which has been trying to undermine China since 1949, then I’m all for it.

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