I spent the last hour reading (at the gym, on a treadmill, so I read slowly!) an article in the latest copy of the Atlantic Monthly June 1998 issue. The article is titled, "The Social Contradictions of Japanese Capitalism." It was an excellent article and well worth reading. From it you can get a glimpse of how the entire Asian crisis was intertwined and how it has unraveled. Japan played an integral role in the crisis.
It was interesting because the author believes that the devaluation of the Chinese currency in 1994, by a whooping 33%, was the catalyst to start the current crisis. It's a little complicated, but makes perfectly good sense.
Briefly, Japan was forced to look for cheap labor when they were on fire exporting to the US in the 1980's. Because they were so successful exporting, their yen went from 360Y=1USD to 80Y=1USD! So they needed to cut costs. Well they went around to a bunch of the Tigers and loaned them money to build them cheap parts. These cheap parts were sent back to Japan, Japan then could incorporate them into their products, and sell back to US at a competitive price in spite of the yen's strength.
Well everything was fine and dandy, until the "motherland of all sweatshops," China, devalued! That's when the artificially pumped up, debt ridden Asian Tigers were forced to slow down, and couldn't pay back loans. The rest is history.
Of course there is lot's more in the article, but the above is what related directly to China.
MikeM(From Florida)
PS Wong, thanks for the post. |
