This was in part due to their exceptional growth performance, but the more important factor was their head start in capital account liberalisation. Asean countries lifted exchange and capital controls even earlier than many OECD countries such as Ireland and Portugal. While foreign investment played a positive role in economic growth, the massive inflow of hot money, intermediated by an unsound banking system, led to excessive credit expansion, misallocation of resources and asset bubbles, especially in real estate. Northern countries, by contrast, were laggards in capital account liberalisation, at least a decade behind southeast Asia, with Hong Kong a notable exception. South Korea and Taiwan kept most restrictions in place, even in the mid-1990s.
China continues to maintain a closed capital account today.
The lack of easy access to these markets explains why their economies long stayed out of the limelight for investment in Asia. This is now changing. Since the crisis, stodgy and closed Korea Inc has boldly embraced reform and liberalisation. Regulations long hostile to foreign investment have been largely removed. Foreigners are allowed to acquire distressed assets ranging from banks to industrial firms.