Mitigating the Impact of a Financial Crisis: Some Lessons from Hong Kong During the 1997 Asian Financial Crisis

Abstract

The year 1997 was a major milestone for Hong Kong: it experienced the height of the Asian financial crisis; and, it was the very year when the sovereignty was handed back from the UK to China. Hong Kong citizens viewed the handover with mixed feelings under the crisis circumstances: pride in reunification and uncertainty over the future. This study systematically assesses the formation, development and importance of Hong Kong’s monetary system, its integration with mainland China, and the position of the City-State as an international financial centre. We use data collected through fieldwork and guided by the literature to analyse reasons why Hong Kong managed to escape the worst of the impact of the Asian Financial Crisis. Interviews were conducted with informed commentators and senior bureaucrats in Hong Kong, mainland China and Australia to assess- the effectiveness of Hong Kong’s monetary system, the feasibility of the “One country, two systems” proposal, and the integration between Hong Kong and mainland China. Our findings provide support to the proposition that Hong Kong was successful in defending its currency against speculators, stabilising its currency through policy interventions, and in the process strengthening its position as an international financial centre.

DOI: 10.5901/ajis.2013.v2n8p285