Foreign Debts Crises, Currency-Financial Crises and China

　The foreign debts crisis in the 1980s in the developing countries worldwide, apart from several east Asian countries whose economy was based mainly on exportation, had such a strong and serious impact on the world's economic system that making up and implementing countermeasures proved to be both complicated and arduous. The Latin American countries, due to their huge amount of foreign debts to banks in the developed countries, suffered most in this crisis.

　In December, 1994, in order to stop the outflow of foreign currencies, the Mexican government had to devaluate its money-the Peso. The sharp devaluation of Peso, known as the Mexican currency crisis, had a serious impact on the securities markets in some of the developing countries. Consequently, the stock indexes in Latin American countries at the end of March 1995 dropped by 30% on average as against that at the end of the previous year.

　Not quite three years later, in July, 1997, a financial crisis occurred in eastern Asia. Starting with Thailand, then Malaysia, the Philippines, Indonesia, finally Hong Kong and Korea were involved, one after another, in this crisis, which was a domino effect because of the common problems they were facing and the shared understanding of and approaches to the markets among these countries.

　Since China's opening-up to the outside world, its economy has been developing fast and steadily. However, the introduction of foreign investment has caused a continuous increase of foreign debts. The on-going financial reform and the entry into WTO make China's economy easier to be affected by the changes of international economic situations. With the constant changing of international and domestic conditions, China's economy becomes more vulnerable to a foreign debts crisis similar to that in the 1980s and/or a currency-financial crisis similar to that in the 1990s. How to cope with the problem of foreign debts and to establish a healthy financial system is an issue of great importance to China today. Should there be a foreign debts crisis or a currency-financial crisis, its effect to the world's economy would be disastrous, as China, though still a developing country, is one of the few major economic powers whose GNP makes up a considerable share in the world's economy.

　China has to study the above mentioned crises, and what's more, to take preventive measures against the likely-to-happen crises of the same nature. While reviewing the foreign debts crises and the currency-financial crises that have happened in the world up to now, this passage deals with the present economic situations, in China, tries to find out the potential factors that may cause a crisis to happen and the possibility of its occurrence, as well as the countermeasures that prevent a crisis from occurring.