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Why China survived the financial crisis
Shalendra D. Sharma

banking sector is the single most essential element of a healthy financial system. This is particularly relevant in transitional economies like the PRC, where markets for corporate securities are limited and much of the lending unsecuritized. In such settings the banking sector constitutes the main institutions that can (and must) effectively evaluate and monitor the risks and returns on financial intermediation, including the evaluation of borrowers’ creditworthiness, and can enforce financial contracts, loan recovery and the realization of collateral. Given these awesome

in The Asian financial crisis
Open Access (free)
Issues, debates and an overview of the crisis
Shalendra D. Sharma

policy responses to large capital inflows, weaknesses in domestic financial intermediation and poor corporate governance resulted in the build-up of vulnerabilities, while banking fragility, high leverage and currency and maturity mismatches made these economies highly susceptible to reversals in capital flows. However, these weaknesses remained unnoticed as long as these economies were growing. Despite these similarities, each country also suffered from its own unique sets of problems, and varied in its response to the crisis. Also, since the most common criticism of the

in The Asian financial crisis
Open Access (free)
The evolving international financial architecture
Shalendra D. Sharma

profits and dividends discourage direct foreign investment, reduce international trade and limit domestic business opportunities. In the presence of capital controls, financial intermediation is less efficient, since savings are not allocated to the most efficient uses, and the range of available financial products and services tends to be narrow and of poorer quality. Also, as capital controls tend to create a wedge between domestic and external financial markets, the resultant differentials between domestic and international interest rates may create problems. That is, the

in The Asian financial crisis
Open Access (free)
Crisis, reform and recovery
Shalendra D. Sharma

diverse and competitive system, and brought benefits to the economy, such as more efficient credit allocation and financial intermediation (not to mention, providing Indonesians with many more options for financial services), banking deregulation also posed challenges that the authorities failed to meet. First, in 1983–88, the seven state banks’ share of total outstanding bank credit hovered around 65 per cent, but after three years of liberalization their share had dropped to 56 per cent in 1991 and to 40 per cent by the end of 1997 (Chou 1999, 37). State banks have

in The Asian financial crisis
Open Access (free)
Crisis, reform and recovery
Shalendra D. Sharma

domestic default. Specifically, the increased level of bank’s foreign indebtedness relative to the lending base of the banks increased their exposure to exchange-rate risk, and the increased level of bank credit to GDP increased their exposure to domestic contraction. While weak domestic financial intermediation and poor corporate governance of Thai banks have been widely blamed for their difficulties, it was the increased exposure of the Thai banks that was primarily the reason behind their problems – something that could not have been corrected by tighter supervision

in The Asian financial crisis