Finally, China is currently recording record surpluses on both the trade and current account. While China will remain among the fastest growing countries in the world, China's growth rate will probably slow significantly from the rapid pace of 1992-1997, perhaps by one or two percentage points. Most of this slowdown is internally driven, however, as efforts begun two to three years ago to tighten credit have finally had an effect. The financial crisis in Asian economies will probably force China to devalue the yuan again to remain competitive in the U.S. market, and this will have repercussions not only for its neighbors and trading partners but also for those foreigners who have invested or consider investing in China. But China will not need an IMF bailout, and it will not rock the world's stock markets to the same degree.
China certainly shares some of the early symptoms of the flu with other countries in Southeast Asia.
China's banking system also probably has a higher share of nonperforming loans than any other Asian country. Yet China's currency is not strictly convertible so capital flight is more difficult, China has less capitalization through the stock market and less foreign equity investment to be repatriated by nervous investors, and China relies less on short-term loans from abroad that will become more expensive to repay if devaluation occurs. Expectations that this will force a devaluation will lead potential investors to wait, and encourage capital flight for those with access to hard currency. Devaluation therefore seems probable, even though China has significant foreign reserves at present, but a major financial crisis is less likely. In order to maintain investor confidence and sooth its worried neighbors, China's government has recently committed to a stable yuan for 1998.