The Role of China's Bureaucracy in its No-Devaluation Policy during the Asian Financial Crisis
Analysts have generally offered two explanations for China's no-devaluation policy during the Asian financial crisis. The first is China's good economic fundamentals and the renminbi is not fully convertible. The second is China's foreign relations' imperative. China was endeavouring to seek favourable entry conditions into the WTO and improve relations with its Asian neighbours. At the same time it sought to exploit the undercurrent of resentment in Asia towards the role played by the US during the crisis. Policy making in China has become more institutionalized in the post-Deng era, but these explanations ignore the role of China's domestic bureaucratic actors in exchange rate policy making. This paper examines the exchange rate regime preferences of China's key economic ministries and their influences in exchange rate policy making and argues that Party leaders were able to adopt a no-devaluation policy throughout the crisis because China's key economic ministries actively supported or acquiesced to that policy.
I wish to thank Elsie Leow for research assistance and the Australian Research Council for financing research that informs this paper. An earlier version of this paper was presented at a seminar at the East Asian Institute, National University of Singapore. I wish to acknowledge the comments from participants at this seminar, which have helped to improve the paper.