Review of The Asian Financial Crisis and the Ordeal of Hong Kong: (Hardcover)

The publication of a book on the financial crisis in Hong Kong by Y.C. Jao from the University of Hong Kong is most timely. Jao is no stranger to anyone who has studied the banking and financial system in Hong Kong. There is no lack of analysis on the Asian financial crisis. However, this is the first book-length study that focuses on the case of Hong Kong. The analysis is particular timely as Hong Kong is currently in the midst of its severest economic recession since the early 1970s. The book not only clearly analyzes the financial crisis in Hong Kong by putting the events that happened in Hong Kong in the last few years in the larger context of the Asian financial crisis, but further delves into the post-crisis economic recession that Hong Kong is suffering.

The author begins by analyzing the origin, nature, and consequences of the Asian financial crisis. He proceeds on to discuss the financial crisis in Hong Kong by looking at the financial crisis itself focusing on how foreign exchange speculators tried to capitalize on the possible event of the collapse of the Hong Kong dollar and how the government reacted to the crisis by its unprecedented attempts to intervene in the stock market. The story was succinctly told with convincing information put together by the author. Jao then analyzes the impact of the crisis on the asset markets, financial sector, and the real economy. The analysis in the book is clear and solid.

The most interesting part of his book is, however, its attempt to answer two puzzles: (1) Why was Hong Kong's economic downturn so severe, and (2) Why was Hong Kong a laggard in economic recover, and the role China plays in the crisis. Jao points out that while the government was able to defeat the currency speculators in the financial crisis of 1997-98 and successfully defend the currency system, the people of Hong Kong, nevertheless, pay a high price as part of the reason for the continuation of the recession after the crisis is attributed to the currency board - the very system Hong Kong tries to defend. The need to defend the linked exchange rate has forced on the Hong Kong abrupt rises in interest rates severely impacting the assets markets and the real markets through the wealth effect, collateral effect, and the credit availability effects. The intricate relationships amongst these factors are clearly explained in the book.

I would recommend this book not only to economists who have an interest in the Asian financial crisis or the Hong Kong economy but also to anyone (as the book was written in non-technical language) who want to make sense of the recession in Hong Kong.



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