230/YOUR MONEY OR YOUR LIFE!
welcome to buy up the 71 institutions that make up the country's
domestic financial sector.
Hong Kong and China
The crisis in the region has also affected Hong Kong and reduced the
influx of capital into China. Capital flows into China had already
dropped by 5 0 per cent during the first half of 19 9 7 compared to the
previous year. In 1996, China had attracted more than half of total
foreign direct investment (FDI) destined to East and Southeast Asia. It
took in S42 billion, the four 'dragons' took in SI7 billion, while
Singapore tookin S9 billion thatyear. (Forpurposes of comparison, all
of Latin America took in only S 3 9 billion in FDI that year. Worse, India
attracted only S2.5 billion, the same as Hong Kong.) It is very likely
that the drop in FDI China registered in 19 9 7 will continue in 19 9 8.
If China finds itself faced with a dramatic fall in the inflow of foreign
capital, it will have to reduce its imports. This could have a depressive
effect on the world economy.
In its desire to keep its exports competitive with those from the
'dragon' countries, whose currencies have significantly dropped in
value, China will be tempted to devalue its currency. It might desist
from doing so in order, on the one hand, to avoid sharpening its trade
disputes with the US, which consistently registers a strong trade
deficit with China and accuses it of unfair trading practices. On the
other hand, such a devaluation would be seen as an admission of
weakness by global markets, and would tarnish the country's image
in the eyes of foreign investors.
Furthermore, before the outbreak of the crisis, Chinese officials had
adopted a programme of large-scale privatisation for 19 9 8. Will they
stick to this plan in a context where all their competitors are
privatising, thereby driving down the price (and therefore the pri
vatisation revenues) of the companies for sale?
Finally, China's growth rate has begun to weaken.
Recessionary Effects Throughout the Third World?
The first Third World countries to be affected by the crisis will be those
whose main revenues come from the sale of raw materials. Prices for
these raw materials have dropped considerably, since the countries
of East and Southeast Asia are major importers of these products.