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6 X 10.5 Three Line Title.P65 Cambridge University Press 978-0-521-13415-6 - From Asian to Global Financial Crisis: An Asian Regulator’s View of Unfettered Finance in the 1990s and 2000s Andrew Sheng Frontmatter More information FROM ASIAN TO GLOBAL FINANCIAL CRISIS This is a unique insider account of the new world of unfettered finance. The author, an Asian regulator, examines how old mindsets, market fundamental- ism, loose monetary policy, carry trade, lax supervision, greed, cronyism, and financial engineering caused both the Asian crisis of the late 1990s and the cur- rent global crisis of 2007–2009. This book shows how the Japanese zero inter- est rate policy to fight deflation helped create the carry trade that generated bubbles in Asia whose effects brought Asian economies down. The study’s main purpose is to demonstrate that global finance is so interlinked and interactive that our current tools and institutional structure to deal with critical episodes are completely outdated. The book explains how current financial policies and regulation failed to deal with a global bubble and makes recommendations on what must change. Andrew Sheng is currently the Chief Adviser to the China Banking Regulatory Commission and a Board Member of the Qatar Financial Centre Regulatory Authority, Khazanah Nasional Berhad and Sime Darby Berhad, Malaysia. He is also Adjunct Professor at the Graduate School of Economics and Management, Tsinghua University, Beijing, and at the Faculty of Economics and Administration at the University of Malaya, Kuala Lumpur. Mr Sheng was Chairman of the Securities and Futures Commission of Hong Kong from 1998 to 2005. A former central banker with Bank Negara Malaysia and Hong Kong Monetary Authority, between 2003 and 2005 he was Chairman of the Technical Committee of IOSCO, the International Organization of Securities Commissions, the standard setter for securities regulation. He is a colum- nist for Caijing Magazine, the largest and most widely read finance journal in China. He edited Bank Restructuring: Lessons from the 1980s (1996) and holds an honorary doctorate from the University of Bristol. © in this web service Cambridge University Press www.cambridge.org Cambridge University Press 978-0-521-13415-6 - From Asian to Global Financial Crisis: An Asian Regulator’s View of Unfettered Finance in the 1990s and 2000s Andrew Sheng Frontmatter More information From Asian to Global Financial Crisis An Asian Regulator’s View of Unfettered Finance in the 1990s and 2000s ANDREW SHENG © in this web service Cambridge University Press www.cambridge.org Cambridge University Press 978-0-521-13415-6 - From Asian to Global Financial Crisis: An Asian Regulator’s View of Unfettered Finance in the 1990s and 2000s Andrew Sheng Frontmatter More information cambridge university press Cambridge, New York, Melbourne, Madrid, Cape Town, Singapore, São Paulo, Delhi, Dubai, Tokyo Cambridge University Press 32 Avenue of the Americas, New York, NY 10013-2473, USA www.cambridge.org Information on this title: www.cambridge.org/9780521134156 © Andrew Sheng 2009 This publication is in copyright. Subject to statutory exception and to the provisions of relevant collective licensing agreements, no reproduction of any part may take place without the written permission of Cambridge University Press. First published 2009 Printed in the United States of America A catalog record for this publication is available from the British Library. Library of Congress Cataloging in Publication data Sheng, Andrew. From Asian to global financial crisis : an Asian regulator’s view of unfettered finance in the 1990s and 2000s / Andrew Sheng. p. cm. Includes bibliographical references and index. ISBN 978-0-521-11864-4 (hbk) 1. Finance–Asia. 2. Financial crises–Asia. I. Title. HG187.A2S54 2009 330.95Ł0429–dc22 2009027826 ISBN 978-0-521-11864-4 Hardback ISBN 978-0-521-13415-6 Paperback Cambridge University Press has no responsibility for the persistence or accuracy of URLs for external or third-party Internet Web sites referred to in this publication and does not guarantee that any content on such Web sites is, or will remain, accurate or appropriate. © in this web service Cambridge University Press www.cambridge.org Cambridge University Press 978-0-521-13415-6 - From Asian to Global Financial Crisis: An Asian Regulator’s View of Unfettered Finance in the 1990s and 2000s Andrew Sheng Frontmatter More information This book is dedicated to my mother, Chuen Mo Jhen, and my wife, Lim Suan Poh, whose infinite patience, encouragement and support made this work possible. © in this web service Cambridge University Press www.cambridge.org Cambridge University Press 978-0-521-13415-6 - From Asian to Global Financial Crisis: An Asian Regulator’s View of Unfettered Finance in the 1990s and 2000s Andrew Sheng Frontmatter More information Contents List of Figures page ix List of Tables x Acknowledgements xiii Introduction 1 1 Things Fall Apart 21 2 Japan and the Asian Crisis 44 3 The Beam in Our Eyes 71 4 Banking: The Weakest Link 86 5 Washington Consensus and the IMF 109 6 Thailand: The Karma of Globalization 126 7 South Korea: Strong Body, Weak Heart 159 8 Malaysia: The Country That Went Its Own Way 187 9 Indonesia: From Economic to Political Crisis 218 10 Hong Kong: Unusual Times Need Unusual Action 253 11 China: Rise of the Dragon 278 12 From Crisis to Integration 303 13 The New World of Financial Engineering 325 14 What’s Wrong with Financial Regulation? 350 15 The Global Financial Meltdown 375 vii © in this web service Cambridge University Press www.cambridge.org Cambridge University Press 978-0-521-13415-6 - From Asian to Global Financial Crisis: An Asian Regulator’s View of Unfettered Finance in the 1990s and 2000s Andrew Sheng Frontmatter More information viii Contents 16 A Crisis of Governance 396 From Asian to Global Crisis: Chronology of Notable Events 411 Abbreviations and Acronyms 429 Bibliography 433 Index 465 © in this web service Cambridge University Press www.cambridge.org Cambridge University Press 978-0-521-13415-6 - From Asian to Global Financial Crisis: An Asian Regulator’s View of Unfettered Finance in the 1990s and 2000s Andrew Sheng Frontmatter More information Figures A Institutional Tree of Life page 17 1.1 Asian Dragons and Tigers: Currency and Stock Exchange Indices, July–December 1997 42 2.1 Monthly Fluctuations in Yen–U.S. Dollar Exchange Rate, 1957–2007 50 2.2 Japanese Foreign Direct Investment to Asia, US$ billion, 1965–2004 52 2.3 Japan’s Net Financial Flows to Developing Countries, US$ billion, 1994–2004 53 2.4 Growth Rates of Asian Economies and Changes in the Yen–U.S. Dollar Exchange Rate, 1980–2007 54 2.5 Japanese Banks’ Consolidated Foreign Claims on Asian Economies, US$ billion, 1983–2007 60 2.6 Japan Debt Assets vs. the Rest of Asia Debt Liabilities 69 4.1 Stylised Model of Economic Growth and Demographic Transition in East Asia, 1945–2025 95 4.2 Emerging Market Credit Spreads, 1990–2006 100 9.1 Indonesia: Net Foreign Liabilities, 1970–2004 243 11.1 Working-Age Population as a Percentage of Total Population, 1950–2050 290 13.1 Global Leverage and Liquidity – The Unstable Pyramid 333 13.2 The Shadow Banking System: Securitizing and Moving Liabilities Off Balance Sheet, 1987 and 2007 337 13.3 Modelling of Financial Markets: Agent-Based Behaviour 344 15.1 Global Real Money and Credit Growth, 1984–2008 377 ix © in this web service Cambridge University Press www.cambridge.org Cambridge University Press 978-0-521-13415-6 - From Asian to Global Financial Crisis: An Asian Regulator’s View of Unfettered Finance in the 1990s and 2000s Andrew Sheng Frontmatter More information Tables 2.1 Selected Asian Economies: Net International Investment Positions page 68 4.1 Selected Asian Economies: Financial Structure (% of GDP) 92 4.2 Selected Asian Economies: Pre-crisis Conditions of Banking Sector, 1997 96 4.3 Selected Asian Economies: Cost of Crisis in the 1990s 98 4.4 Selected Asian Economies: Capitalization and Turnover of Stock Markets, July 2008 (US$ terms) 101 6.1 Thailand: Selected Real Economy Indicators 128 6.2 Thailand: Selected Currency and Current Account Indicators 129 6.3 Thailand: Selected Foreign Capital Indicators 134 6.4 Thailand: Selected Interest Rate Differentials (% per Annum) 137 6.5 Thailand: Financial Structure (% of GDP) 138 6.6 Thailand: Bangkok International Banking Facilities Credits (Billions of Baht) 139 6.7 Thailand: Selected Asset Prices 142 6.8 Thailand: Selected Financial Sector Indicators 143 6.9 Thailand: Selected Foreign Reserves and External Debt Indicators 144 6.10 Selected Asian Economies: Currency Composition of Long-Term External Debt, 1996 and 1997 (%) 146 7.1 South Korea: Selected Real Economy Indicators 160 7.2 South Korea: Financial Structure (% of GDP) 165 7.3 South Korea: Selected Financial Sector Indicators 167 x © in this web service Cambridge University Press www.cambridge.org Cambridge University Press 978-0-521-13415-6 - From Asian to Global Financial Crisis: An Asian Regulator’s View of Unfettered Finance in the 1990s and 2000s Andrew Sheng Frontmatter More information List of Tables xi 7.4 Selected Asian Economies: Inward Foreign Direct Investment Stock (% of GDP) 168 7.5 South Korea: Selected Interest Rate Differentials (% per Annum) 170 7.6 South Korea: Foreign Reserves and External Debt Indicators 172 7.7 South Korea: Selected Currency and Current Account Indicators 175 7.8 South Korea: Selected Foreign Capital Indicators 178 8.1 Malaysia: Selected Real Economy Indicators 188 8.2 Malaysia: Selected Currency and Current
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