Adapting to Globalization: Lessons from China

Abstract

China entered the new millennium confronting one of the most complex economic situations since the reform period began over two decades ago. At home, internal demand slackened as five years of austerity began to take their toll; and abroad, most of China’s neighbours were still adjusting to the wrenching recession that gripped East Asia after the collapse of the Thai baht in July 1997. The Chinese economy initially escaped relatively unscathed, partially insulated by huge foreign exchange reserves, relatively low short-term debt, and a semi-closed capital account. However, as the momentum for growth from the domestic market declined, and export growth slowed with the collapse of its East Asia markets, authorities searched for new ways to rekindle both growth and exports.