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From BEIJING REVIEW, March 23-29, 1998


By Dai Xiaohua (Staff reporter)

The recent financial crisis in East Asia has made financial people
think. They're pondering the bold achievements and development model
of East Asia. Some praise it, some disparage it.

Michel Camdessus, managing director of the International Monetary Fund,
said the East Asia Model is outdated and needs to be replaced by a new
model. Some westerners even think the crisis predicts the end of the
high speed economic development in East Asia. Others do not agree.
Joseph Eugene Stiglitz, vice-president of the World Bank, considers the
miracles in East Asia are tangible. One of the most conspicuous
achievements in history is the fact that East Asian miracles changed the
Asian economy.

Today, with the integration of the world economy, evaluating the East
Asian Model properly and learning from the financial crisis are global


The East Asian Model is far from being perfect, but it has brought East
Asian and Southeast Asian countries remarkable achievements over the
past twenty years. For example, China has retained an annual growth rate
of 9.9 percent in its gross national product (GNP) since the 1970s.
During its Eight Five-Year Plan period (1991-95), in particular, the
annual growth rate reached 12.1 percent. In 1960, the national product
per capita in the Republic of Korea was US$ 80, 1/35th of the United
States' US$ 2,801. In 1996, however, the figure had increased to over
US$ 10,000, half of that in the US. Another example is Thailand, its
GNP in 1951 was US$ 1.4 billion, while in 1995, it reached US$ 163.2
billion, a 144 times increase.

The high-speed developing economy has helped East Asian people alleviate
poverty on a large scale. In 1975, six out of ten Asians had an income
of less than one dollar per day. The absolute poverty rate in Indonesia
was even higher. Today, only two out of ten Asians live in absolute
poverty. During the same twenty years, the Republic of Korea, Malaysia
and Thailand have alleviated absolute poverty. The family per capita
income doubled in urban areas of China and quadrupled in rural areas.
Altogether, 192 million Chinese have cast off the shackles of poverty.
Most meet the basic need for food and clothing.

What's more, the booming of East Asia's economy accelerates the
development of the world economy. In recent years, some European and
American countries have in succession turned East Asia into a base for
their national economic increase. The prosperity of US economy is
closely related to its changed policy. It deserted the traditional
economic policy of "focusing on Europe while ignoring Asia", and,
instead, turned its investment focus toward East Asia and conducted wide
economic cooperation with East Asian countries. Also, the East Asian
Model benefits many developing countries in Africa and Latin America.

The rapid economic development has also relaxed the contradictions
inside each East Asian country. The society maintained long-term
stability, and state relations in the region strengthened significantly.
Consequently, the international status of East Asian countries and the
whole region improved. These countries began to play an increasingly
important role in global and regional affairs, contributing much to
world peace and stability.


The financial crisis in Southeast Asia started in the middle of last
year and seriously damaged the economy of many countries. To date, the
Republic of Korea, Thailand, Indonesia and the Philippines remain in the
shadows of the financial blow. The crisis will continue for a while.

What is the real reason for the financial crisis? Is it a failure of the
development model? More and more serious and thorough discussions are
being held by financial people. In the view of Stiglitz, the crisis is
the inevitable result of accumulating contradictions that were concealed
by high-speed economic development. The direct reasons, he said, are
mistakes in financial policies, including improper investment
distribution, inappropriate equity-debt ratio and freeing up the capital
market too quickly.

Any policy, in bringing about positive effects, may result in negative
influences. High deposit and high investment ratios are essential to
economic development. If handled improperly, however, these ratios will
cause over-investment or repeal investment. State intervention is
commonly used to adjust the economic development in East Asian
countries, but this also leads to integration of officials and business
people, barriers to market growth and corruption in the government, as
seen in the Republic of Korea. High-speed economic increase, without
restraint, can become too hot. These are the conditions that drove the
Southeast Asian countries into crisis. Other countries or regions (such
as China, Singapore and China's Hong Kong SAR) carried out deliberate
financial policies, especially related to currency exchange, emphasized
efficiency rather than high-speed increase and attached great importance
to an appropriate increase and a sustainable development. Therefore,
they effectively avoided the financial crisis. All these countries abide
by the East Asian Model, but each saw different results. So, it can be
said that the problem does not lie in the East Asian Model itself, but
in each country's implementation of its economic and financial policies.

It is neither the first nor the last time that a financial crisis has
broken out in Southeast Asia. Mexico went through a financial crisis
several years ago, and Norway, Sweden and Finland were also attacked by
a financial crisis recently. Yet, their development road is not denied.
In the same way, the economic development road of Southeast Asia should
not be denied.

Is the national economy of Southeast Asian countries too weak to stand
competition? According to a professor from Chicago University and Nobel
Prize winner in economics, the prospects of most rapidly growing
economic entities of East Asia are still bright. The economic increase
rate of the Republic of Korea in 1998 will be 2.5 percent. Indonesia,
Thailand and the Philippines will also maintain a positive economic
increase rate. Even if the economy of these countries stops growing in
the coming five years, their average speed of economic increase in the
next 25 years will still surpass that of the world. Their future will be
brighter if these countries manage to free themselves from the current


China, with many surrounding countries, belongs to East Asia. It has
suffered little from the financial crisis, which owes much to China's
stable economic structure and predictive economic policies.

First, as early as in 1993, China paid attention to the asset value in
its financial market, thereby effectively preventing the financial
risks. Second, China continuously makes attempts to improve its
financial adjustment system and standardize its foreign exchange order,
thus avoiding the attack of international capital on the national
economy. For instance, China has limited its external borrowing to 17
percent of its GNP, while the foreign debt of Indonesia and the Republic
of Korea accounted for 56 percent and 30 percent of their GNP
respectively. Third, China's favorable balance of payment position and
logical structure have laid a solid foundation for its macro-economic
situation. China's strong economic foundation and reform and opening
policies also attracted a lot of foreign investments. Chinese
Vice-Premier Li Lanqing said that China's economy will maintain its
growth rate of 8 percent this year and will put US$ 750 billion into
infrastructure projects in the following three years. A chief economist
of Hong Kong-based economists intelligence agency concludes: "China is
not the next country to see a financial crisis. It has a strong economy".

China will not stop at its powerful economy and stable development. It
managed the burden of the crisis, and eased its effects, with an active
and positive attitude, demonstrated by measures taken by the government
in preventing the devaluation of the Renminbi.

When the currency mayhem swept across Southeast Asia last summer, almost
all far-eat countries devalued their currencies. China, however, raised
the value of the Renminbi slightly and the bullish Renminbi further
supported the Hong Kong dollar. The fall of the stock market in
Hong Kong last October exerted strong pressure on the Renminbi. China's
exports also slowed down. Actually, there would have been little blame
if the Renminbi had been devalued. But many Chinese leaders declared
publicly that the Renminbi would not devalue, which, according to
Lawrence Summers, deputy secretary of the treasury of the United States,
was the most important contribution China made to the Asian stability.
As stated in a WASHINGTON POST article, China is no longer a big
economic power considering only its own interests, but rather, has
become a global economic, trade and financial country shouldering far
more responsibilities than ever before. People should be confident that
difficulties in the financial crisis of East Asia could be overcome with
China's contribution and the efforts of the related Asian countries. The
improved East Asian Model will fill the region with new vitality and

Some westerners, especially some Americans, claim that the East Asian
Model is outdated, hoping to replace it with the American Model. As an
article from Singapore's LIANHE ZAOBAO pointed out, the ultimate goal of
United States' provoking conflict between the American and East Asia
models is to infiltrate "American economic liberalism" into these East
Asian countries, thereby laying a theoretical foundation for the
penetration of "American democracy" and "American human rights" in Asia.