Comparison of the Effects of the Financial Crisis in Asia and the U.S



For many years, the exchange between Chinese and American economic officials centered on the trade imbalances that characterized the bilateral trade of the two countries. In addition, to the exploration of the trade imbalances, talks also touched on the distinctiveness of the respective trends on economic performance in the global economy remained an important topic of study. In 1997, the Asian financial crisis led to unprecedented devaluations in the currencies of Asian countries, presenting a trend that had the potential to impact the economics and relations of U.S, China, Hong Kong, and other foreign policy interests adversely. The impacts of the 1997 crisis included that Asian stock markets and currencies remained highly depressed and unstable for some time. However, despite the economic turmoil, China registered a GDP increment of 4.4 percent.

The effects of the Asian crisis on the US were different from those experienced in China, including that it focused its efforts towards the maximization of shareholder value. In 2008, the global financial crisis hit the global economy, and this time, China and Hong Kong charted a strategy for stimulating its economic productivity, with the aim of securing its economy from the recession.2 The strategy entailed the provision of debt financing to Chinese companies. Unfortunately, in 2015 the companies that had received the debt were having trouble repaying the debt stimulus received, and public debt shot up by a big percentage.3 The comparison of the effects of the Asian and the Global crisis will highlight the impacts of the crises in the foreign relations of the US, China, and Hong Kong, and the distinctions before and after the crises.

Comparison of the Effects of the Asian and the U.S Financial Crises on China, Hong Kong, and the U.S Economies, and Business

The Effects of the Asian Financial Crisis on the US, Chinese, and Hong Kong’s Economies

The effects of the financial crises on Hong Kong can be directly traced to its handover from the UK (United Kingdom) to China.4 The transformation of trade and international relations dynamics for Hong Kong triggered changes in organizational infrastructure, and thus Hong Kong was affected by the 1997 crisis profoundly. In comparison, the relative political stability of the US and China safeguarded their respective economies from the effects of the 1997 Asian crisis to some extent. The first area that was profoundly affected by the 1997 crisis was the ranking of pre-handover Hong Kong, as one of the countries with the highest ease of starting and operating a business. Pre-handover Hong Kong allowed investors easy access to markets, and the evidence of the distinction was the high numbers of new business startups, due to the absence of government interference.5 The Asian crisis had similar impacts on the Chinese economy, considering that it did not show positive recovery as early as other Asian countries, which showed evidence of recovery in 1999 and 2000.6 In 2000, the estimations done by Chinese economists highlighted that it was making positive progress7, and some experts also reported that the economic growth of China had reached its golden stage.8 The evidence used to support the growth of the Chinese economy included the report that Chinese exports expanded in the 2000s considerably, to hit the record highs it had made in 1997, indicating that it had regained the market and economic strength it had before the Asian financial crisis hit.

Unlike the Chinese and Hong Kong economies, the US economy, on the other hand, was the least affected by the 1997 Asian crisis. The major economic impacts of the Asian financial crisis included that the demand for its export products in China and Hong Kong reduced considerably, which affected US industries negatively.9 However, unlike the effects of the crisis in China and Hong Kong, the changes triggered by the economic changes did not affect employment levels or the productivity of domestic industries.10 The exceptional case that was affected negatively was the US steel industry, noting that its economic trend showed an increment in output, due to the drop in commodity prices and the productivity of the industry. The export market of Hong Kong was particularly affected in a negative way, as compared to the Chinese market, which remained relatively stable. The economic indicators of China remained relatively favorable, despite that the 1997 crisis reduced export levels from the 20% growth registered in 1997 to the lows of 0.5% in 1998.11

Following the Asian crisis of 1997, the impacts felt in the Hong Kong economy were deep-reaching, including that its real estate bubble burst and the economy fell into a recession.12 In contrast, the Chinese real estate market did not collapse, but it remained sluggish for a few years, indicating that the economic blow was profound. The case of the US was different, noting that its real estate market was not affected by the Asian financial crisis. Instead, the US economy experienced a positive effect, including that the prices of imported products reduced, which was favorable for the American people.13 The responses and strategies adapted by the Hong Kong government to address the turmoil triggered by the Asian financial crisis included the initiation of a stimulus package for the economy. The stimulus program was effective, considering that it started the course of economic recovery.14 However, unlike China, Hong Kong’s previous structural challenges impacted its economic growth after the crisis, and thus had a slower recovery as compared to China and other Asian countries. The case of the US was new, altogether, considering that its economy was affected mildly, and only its export and import markets were adversely affected by the ripple effects of the impact felt in China and Hong Kong, among other trade partners.

The Asian crisis sparked political tension and conflict in Hong Kong, which became apparent from the divergence on the political that had decisive legal authority about Hong Kong. The evidence of the political separation and instability included that in 1999, Beijing overruled the decision-making capacity of the Final Appellate Court of Hong Kong. The political conflict and the previous transformations triggered widespread entrepreneurial uncertainty in Hong Kong, due to the realignments that took place in the distribution and management of resources and social groupings. Unlike Hong Kong, China did not report such political instability or conflict, except that it was behind the attempts to challenge the political independence of the post-handover administrative unit. The US was not affected politically, by the Asian financial crisis in any serious way, primarily because the US does not have political relations with Asian countries. The journey of recovery of Hong King was evidently affected by the power struggles, noting that by 1999, the Hong Kong economy had not registered as much growth as China.

In the efforts to restore its initial levels of economic performance, Hong Kong’s administration made the decision of using economic and domestic prices adjustments, as the political vehicle to restart economic growth. In contrast, China adopted the macroeconomic processes to restore its economic health, together with other Asian countries. For example, China sought to build its industrial base, as the strategy to maximize its value and benefits in the global market. Further, China used the non-market systems and state regulations aimed at restraining competition in the domestic market, with the aim of channeling more of its resources to its strategic to spur economic growth. As opposed to the economic strategies adopted by China, Hong Kong utilized a market-cantered economic model, which is apparent from the limited intervention of the government as the financial referee. The mechanisms put in place by Hong Kong include those on the protection of property rights, leveling the economic playing field, and providing the necessary social infrastructure needed for the optimal operation of the markets. The effects of the market-focused strategic outlook include that it led to the creation of a highly dynamic business community that responds to market dynamics such as demand. The impact of adopting the strategic model include that Hong Kong has surpassed the capacity of China, among other Asian countries, in capturing the economic opportunities for investments.

The Effects of the 2008 Financial Crisis on the US, Chinese, and Hong Kong’s Economies

The Hong Kong economy was affected by the 2008 financial crisis immediately, due to its connectedness to the global economy, immediately after the downfall of various American financial institutions.15Immediate impacts were felt because Hong Kong is a major trading port in the world, and thus the shrinkage of major global markets such as the US by an estimated 16.5 percent was considerable. Due to the impacts of the global financial crisis in the USA and other major trading partners of Hong Kong, in 2009, the country reported a reduction of its exports by 27 percent.16 The economic impact of the 2008 crisis included Hong Kong’s GDP reduced by 7.8 percent, despite that it remained fairly unaffected, in 2008. Due to the connection of the Hong Kong economy to that of China, a lot of investment money, estimated at USD 64 billion came into the country, immediately after the economic crisis. The effects of the inflow of the money led to a rise in housing and stock market prices of Hong Kong. The job losses reported after the 2008 global crisis was less pronounced, as compared to the case of the 1997 financial crisis. In particular, the job losses that had taken place in 2008 were reversed in 2009 and further growth in employment levels was realized.

Similarly, the 2008 financial crisis had major effects on China’s economy, despite that it continued to grow at a rate of over 9.6 and 9.2 percent for the years 2008 and 2009 respectively. The typical assumption made was that the 2008 financial crisis did not affect the Chinese economy, but the 9 percent growth reflected a considerable reduction in growth levels from the 14.2 percent rate of 2007. The difference demonstrates that China was hit as badly as other major economies such as the US. The immediate effects of the crisis include that foreign direct investment levels flowing into China reduced after the onset of the 2007-08 crisis to hit the lowest of USD 70.32 in 2009. However, FDI levels flowing into China rose to pre-crisis levels after the Chinese economy showed immunity against the effects of the capital and wealth flow effects that affected the US and the global economy.

Unlike China and Hong Kong, the US was highly affected by the 2008 financial crisis, including that it reduced the revenues generated by the US economy profoundly. The effect was apparent from the difference in the forecasts made by the congressional budget office, and the real performance of the US economy between September 2008 and December 2009. The indication is that the 2007/8 financial crisis affected the earning capacity of the average American household adversely. In an attempt to mitigate the effects of the financial crisis, the government spent a lot of money in the program Troubled Asset Relief Program.17 Unfortunately, the program led to adverse effects, including that it yielded a net cost of USD 73 billion, which further affected the average income levels of American households.

The effect of the 2008 global crisis in the financial sector was also transitory, especially for the high-income workers of the country, such as managers, and professionals. In contrast, job losses were profound in some industries, considering that job losses were highest among the semi-skilled workers that depend on the activities of the export market. However, the recovery in Hong Kong’s asset market led to the recovery of the employment sector. However, the positive recovery was less experienced by the low and middle-income earners, due to the recent expansion in the gap between the poor and the rich and the weakened housing coverage of the two social classes.

In the case China, despite showing immunity against the contagion effects of the crisis, it was affected intensely. The effects resulted from the fears that resulted from the stock market boom that China had enjoyed between 2005 and 2007; the stock market crashed and immediately lost more than half of its initial value. The real estate market suffered a similar effect, despite that it did not suffer as many impacts as the trade channel of the US, mainly due to the reduction in the demand for China’s exports. For example, in 2009, the levels reduced by an estimated 17 percent, and that affected the economy profoundly, considering that an estimated 40 percent of its GDP comes from its exports to Western markets such as the US. In November of 2008, the impact of the crisis on China’s export levels included that growth rates reduced to -2.2 percent from the high of 20 percent that it had registered in October 2008. However, the recovery in the US economy, among other economies impacted the Chinese positively.

The crisis affected the real estate value of the US profoundly, including that it reduced the wealth held in real estate properties by more than USD 3 billion, during the span between July 2008 and the first quarter of 2009, according to the statistics highlighted by the Federal Reserve. Trade was affected in an equally adverse way, noting that the companies and the businesses that relied on bank credit to run their operations were not able to secure credit services. The trend resulted from the widespread fears that the credit advanced would not be paid. The stock market was affected negatively, including that it lost more than USD 7 trillion in stock value during the span between July 2008 and the first quarter of 2009, according to the statistics provided by the Federal Reserve. In particular, stock prices such as the Dow Jones lost about a third of its value in 2008. The job market was equally affected, considering that about 5.5 million people lost their employment, due to the slow speed of the economic activity and growth of the US economy.

The Regulations Adopted By the US, and Hong Kong due to the Crises

The Asian financial crisis and the 2008 financial crisis compelled governments to fashion and adopt regulatory reforms. The various sets of regulations adopted by the US, Hong Kong, and the Chinese government includes those aimed at reducing the systemic risks that are encountered in the process of carrying out global market operations, with the aim of making markets, and financial systems safer.18 There have also been regulations formulated on the restructuring of banking institutions, making taxation systems and operations more transparent, and strengthening the thresholds that players should meet in the operations of capital markets.

In the US, the regulations adopted include the Dodd-Frank regulation on accountability and transparency on the operations of swap markets.19 The directives under the regulation include the empowerment of the CFTC (Commodity Futures Trading Commission) as the oversight authority for swaps operations, except those that are security-based. The regulations enforced by the CFTC and also the Securities Exchange Commission are responsible for overseeing the operations of financial organizations, clearinghouses, and electronic execution establishments. Further, the regulations lay the framework for registration requirements that participants and dealers should meet, considering that their operations can affect the financial system of the US negatively if they are not properly administrated.

Similarly, Hong Kong, the HKMA reforms were adopted for the same purpose that the regulatory changes adopted in the US was fashioned and adopted.20 Following the 2008 crisis, the HKMA adopted the regulations towards improving the transparency and reduce the risks arising from over-the-counter markets for derivatives. The reforms adopted by the regulatory community made the directives that the reports of all OTC derivatives are to be tendered at trade repositories. Further, the regulations direct that all over-the-counter deals are to be cleared at dedicated clearing facilities. Trade repositories (TRs) are the centers that maintain the database showing the over-the-counter deals that have been made, and providing the information to regulatory systems and oversight authorities. TRs, on the other hand, are very crucial in the operations of the market, including that they offer the oversight needed to check that market supervision is done effectively, towards increasing financial stability. TRs also play the role of increasing market transparency, promotion standardization throughout markets and also ensuring that transaction data is of a high quality.


For many years, the debate between the US and Chinese experts was on the trade imbalance that has continued to characterize the trade relations between the two countries. More recently, the Asian financial crisis and the 2007/8 global financial crisis altered the working of financial and monetary markets globally, particularly those of China, the US, and Hong Kong. In response to the two financial crises, the various countries adopted strategies and the policies aimed at stabilizing the operations of the respective financial and other markets such as the real estate. The effects of the Asian financial crisis in Hong Kong included that the leaders adopted a market-centered model, as opposed to the manipulative strategy adopted by China. The effects of the 2008 global crisis included the loss of trade, following the shrinkage of the trade operations of its major economic partners, including the US and China. The effects of the Asian financial crisis in China included that its export levels reduced considerably, and the 2008 global crisis triggered the widespread depreciation of China’s currency. Further, the 2008 crisis led to that the stock market crashed, despite that the economy remained relatively stable. The effects of the Asian financial crisis felt by the US were mild, including that the market for its exports reduced. The effects of the 2008 global crisis were intense, including that the real estate and the stock markets crashed. In response to the effects of the financial crises, the US, Hong Kong and also China adopted regulations to increase the transparency of financial markets and reduce risks.


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20HKMA."Over-the-Counter Derivatives Trade Repository."Hong Kong Monetary Authority, 2015.Accessed June 25, 2015.

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