China Emerging_ 1978-2008 - Xiao-bo , Wu [42]
This caused the Baht to drop sharply in value against the US dollar. The Thai government used five billion dollars of its dollar-denominated foreign reserves and another twenty billion in US dollar loans in an attempt to prop it up. The Baht continued its downward slide. On July 2, the Thai government was forced to announce that the Baht was going to be freely floated, and it immediately lost 20% in value. Swift attacks on the Malaysian, Philippine, and Indonesian currencies soon followed. Within four months, the middle classes of these three countries lost 50%, 61%, and 37%, respectively, of their asset values. South Korea was next and the Korean currency lost 50% of its value in two months; the national economy appeared to be on the verge of collapse, and Daewoo, the company that had recently been considered a role model by the Chinese entrepreneurs, simply toppled over.
Although China had implemented financial controls against international capital and the country was not directly affected by the storm, it was indirectly influenced by the economic decline of its neighbors. The Chinese stock market fell and consumers stopped buying. As the threat of inflation declined daily, the trick now was how to stimulate the economy again. Although the interest rates on loans approached zero, this did not stimulate consumption or production. According to a report by the State Statistical Bureau, in mid-1997, the value of goods in inventories all over China exceeded RMB 300 trillion. There now seemed to be a phenomenon of “structural oversupply”—supply greater than demand in 95% of all categories of industrial goods. Such a phenomenon had occurred only once before, in 1990. In June 1997, three government agencies came together to set up a
The “finance crocodile,” George Soros, who contributed to the Asian financial crisis of 1997. For the first time, China displayed the form and substance of an economic power during this crisis. At the same time, China turned on a dime in modifying its domestic economic policies.
The construction of the Three Gorges dam greatly changed the face of cities in central Sichuan. The erection of stone markers reading “156-meter water line” presages the fact that by 2003, this area would be inundated by water. Photographed in 1997.
The Three Gorges resettlers.
center for the adjustment of national inventories. This soaked up some of the over-supply in an effort to get the economy moving again.
These extreme changes in the market environment meant that privately-run enterprises in China went into a substantial decline. Some highly popular enterprises were now out of business. History is never the straight line that people expect—more commonly, it forks at the most unexpected times and presents people with extreme challenges. What nobody could have expected was that the Asian financial crisis and China’s resulting grim economy, allowed the market-oriented restructuring of China’s state-owned enterprisestosurgeahead.
In fact, these stateowned enterprises had reached a point where they
were either going to change or die. In January 1997, the third national industrial census was published, showing that the situation was dire. The rate of return on capital in state-owned enterprises was only 3.29%, much lower than the interest rate on one-year bank deposits. Eighteen of thirtynine industrial sectors were showing sector-wide losses. The total debts of state-owned industries were 1.92 times equity—there were not enough assets in any enterprise group to offset the debts.
Likewise, township and village enterprises were hitting a wall. In the past twenty years, two models had run neck and neck with each other. One was known as the “Wenzhou model,” a privately initiated and privately owned form of enterprise. The other was known as the “Su-nan model,” the prevailing form of collective enterprise in southern