Financial Liberalization, Crisis, and Rescue: Lessons for China from Latin America and East Asia?

Abstract

This paper examines the liberalization process in the context of reflecting on the challenges facing China's financial system and possible lessons that can be learned from the experiences of other emerging market economies. Section 1 begins with a brief look at the characteristics of the Chinese financial sector at the beginning of the twenty-first century. It then turns to selected country experiences from two emerging regions: Latin America and East Asia (excluding China). Section 2 presents the framework and hypotheses for studying liberalization. Section 3 examines statistics on financial liberalization. Section 4 turns to the relationship between financial liberalization and crisis. Section 5 analyzes short-term rescue mechanisms, their fiscal and other costs, and their degree of success. Section 6 concludes with some lessons that China might draw from its Asian neighbors and Latin America. This paper was presented at the Latin America/Caribbean and Asia/Pacific Economics and Business Association (LAEBA)'s First Annual Conference, held in Beijing, People's Republic of China on December 3rd-4th, 2004.