China Emerging_ 1978-2008 - Xiao-bo , Wu [45]
Hong Kong was able to withstand the pressure of international speculators because of the support of the central government of China. A year earlier, at a key World Bank meeting, China had made it clear that it would stand firm in the face of financial instability.
In October 1997, the World Bank held its annual meeting in Hong Kong, and Soros, Mahathir (the then Prime Minister of Malaysia), and Chubais (the then Prime Minister of Russia), among others, were invited. Given the then ongoing Asian financial crisis, no one knew whether or not the renminbi would be devalued. This was perhaps the most sensitive issue facing the attendees. The World Bank invited Zhu Rong-ji to give the keynote speech, in which he solemnly declared, “China will adhere to the position of not devaluing the renminbi. It will take on the historic responsibility of stabilizing Asian finance.” All Asian state leaders drew a long breath of relief at this assurance. The Far Eastern Economic Reviewlater noted, “For the first time, China is playing the role of a major economic power in meeting an economic crisis of a global nature.”
The People’s Liberation Army rescuing “David’s deer” trapped on dikes surrounded by water during the floods in 1998.
Floods along the Yangtze River in 1998.
Zhu took an unprecedented risk in deciding to defend the renminbi. China’s economy was flagging and the country could not afford to play the hero. Exports were declining, inventories of over-stocked goods were rising, and consumer demand was listless. In June, onehundred-year floods raged along the Yangtze River basin. Twenty-nine provinces were severely affected; 4,150 people died; and direct economic losses amounted to RMB 255.1 billion. It was universally understood that if China did not devalue its currency, its economy would be in serious trouble.
The only possible course of action was to “look inward” and stimulate domestic demand. Chinese people lead the world in their propensity to stash away savings. Some RMB 5 trillion were locked away in savings deposits at that time; if only some of this could be diverted to consumption and released into the economy, an economic recovery would follow. Zhu Rong-ji made what, at the time, was a very momentous decision. In order to stimulate consumption, he decided to promote the buying and selling of real estate. In the several years before this, he had recommended policies that restrained the development of real estate. In order to prevent inflation, he felt he had to stay on guard against the speculative behavior that the real estate market could foster. But the situation had changed. Now, the only weapon in his arsenal to mobilize demand was housing.
The system of “housing distribution as a social benefit” was abolished in 1998, forcing people to purchase their own homes using mortgage loans. This started a housing boom that has been the engine behind China’s economic growth during the past decade. Housing construction has also been the most profitable industry in the country. This photograph shows a housing advertisement.
For more than forty years, housing had been allocated to each and every Chinese person in the country as a social benefit. It was allocated via the “units” or organizations that were assigned to people. In July 1998, the State Council abolished this system. It decided that all party and government organizations would cease to distribute housing and would instead promote the monetization of housing allotments. The adoption of this policy gave rise to a vast market for housing