The Politicization and Nationalization of Hong Kong during the Asian Financial Crisis

By Wei, William | International Journal, Winter 2000 | Go to article overview
Save to active project

The Politicization and Nationalization of Hong Kong during the Asian Financial Crisis

Wei, William, International Journal

SINCE THE SUMMER OF 1997, THE WORLD HAS BECOME acutely aware of the 'Asian financial flu' that has dislocated the economies and destabilized the politics of Asia. Its symptoms have been manifest: major banks and corporations have defaulted on their loans and failed to repay foreign debts; nervous native and foreign investors have with drawn vast amounts of capital; and property and stock values have plummeted, while inflation and unemployment have soared. According to the World Bank, the worst hit countries, such as Thailand, the Philippines, Malaysia, Indonesia, and South Korea, have lost the equivalent of 80 per cent of their gross domestic product. Moreover, the World Bank predicts that overall the region will experience negative growth rates, ranging from -2 to -15 per cent. In short, Asia is in a recession from which it may take as long as five years to recover.

At the beginning of the crisis, from summer through the early autumn of 1997, the conventional wisdom was that Hong Kong would be protected by its healthy economy. Since Hong Kong's economy was based on free market economics underpinned by the rule of law rather than on the 'crony capitalism' prevalent elsewhere in Asia, it was thought to be immune from the contagion. Unfortunately, it too succumbed to the region's economic turmoil. By the summer of 1998, the Hong Kong Special Administrative Region (SAR) government was forced to declare that the economy was in recession for the first time in 13 years. Because this was an unprecedented as well as an unwelcomed experience for almost an entire generation of Hong Kongers, it produced an uncharacteristically pessimistic mood in a usually upbeat society. Restoring confidence in Hong Kong and safeguarding its economy has proven to be the SAR's greatest challenge. Its failure to respond effectively to the economic crisis has led to the politicization and nationalization of Hong Kong, unexpected changes that have profound implications for its future.


The Asian financial crisis that began with the devaluation of the Thai baht on 2 July 1997, finally caught up with Hong Kong in late October 1997. To combat fears of an assault on the Hong Kong dollar and stem the withdrawal of capital from Hong Kong investments, the Hong Kong Monetary Authority (HKMA), which acts like the United States Federal Reserve, raised its interest rate. This in turn prompted local banks to raise their prime lending rates and caused the Hang Seng Index to plunge 1,700 points or 14.6 per cent, the largest point drop and the third largest percentage loss in its history.

Any doubt that Hong Kong had contracted the 'Asian financial flu' was laid to rest with the spectacular collapse of Peregrine Investment Holding, a regional investment powerhouse known for its risk-taking. The main reason for Peregrine's fall was its unsound investment in the ironically named Indonesian taxi company, Steady Safe. On the eve of its destruction, Peregrine held $270 million in promissory notes, denominated in United States dollars, from Steady Safe - or about one third of its capital assets. In addition, it held an estimated US $400 million in other Indonesian debt securities. Because of the dramatic decline of the value of the Indonesian rupiah and its failure to hedge against currency risk, Peregrine's investment became worthless virtually overnight. Besides Steady Safe, Peregrine had other so-called illiquid assets, such as loans to two other Asian companies that totaled US$310 million. Altogether Peregrine's exposure to creditors was approximately US$1 billion dollars.

With no 'white knight' to come to its rescue, Peregrine was forced to liquidate on 12 January 1998. News of its demise had an immediate impact on the stock market, causing the Hang Seng Index to drop 8.7 per cent. Peregrine's collapse raised questions about the lack of transparency in Asian business dealings in general and Hong Kong's regulatory systems in particular.

The rest of this article is only available to active members of Questia

Sign up now for a free, 1-day trial and receive full access to:

  • Questia's entire collection
  • Automatic bibliography creation
  • More helpful research tools like notes, citations, and highlights
  • Ad-free environment

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
Loading One moment ...
Project items
Cite this article

Cited article

Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

Cited article

The Politicization and Nationalization of Hong Kong during the Asian Financial Crisis


Text size Smaller Larger
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

While we understand printed pages are helpful to our users, this limitation is necessary to help protect our publishers' copyrighted material and prevent its unlawful distribution. We are sorry for any inconvenience.
Full screen

matching results for page

Cited passage

Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

Cited passage

Welcome to the new Questia Reader

The Questia Reader has been updated to provide you with an even better online reading experience.  It is now 100% Responsive, which means you can read our books and articles on any sized device you wish.  All of your favorite tools like notes, highlights, and citations are still here, but the way you select text has been updated to be easier to use, especially on touchscreen devices.  Here's how:

1. Click or tap the first word you want to select.
2. Click or tap the last word you want to select.

OK, got it!

Thanks for trying Questia!

Please continue trying out our research tools, but please note, full functionality is available only to our active members.

Your work will be lost once you leave this Web page.

For full access in an ad-free environment, sign up now for a FREE, 1-day trial.

Already a member? Log in now.

Are you sure you want to delete this highlight?