The Asian financial crisis of 1997 has had a major impact on regional and world economies. This chapter discusses the implications of the crisis for China. Just as the Chinese word for ‘crisis’ is made up of two characters, danger and opportunity, the Asian financial crisis presented China with both dangers and opportunities.

The chapter begins by examining the short-term consequences of the crisis for China. China has avoided the immediate effects of the crisis, but the economic recessions in neighbouring countries have led to a slowdown in China's economic growth. On the other hand, the crisis has provided an opportunity for the Chinese government to enhance its political image both domestically and on the international stage. Next, the chapter explores some long-term implications of the crisis. Although China has avoided the financial shock and economic meltdown in the short run, it shares some of the institutional problems at the root of the crisis elsewhere in Asia. What happened to other Asian countries has alerted Chinese leaders to the urgent need for change. At the same time, the economic slowdown caused by the crisis has complicated the task of economic restructuring. The chapter analyses the political dynamics of financial and enterprise reforms, focusing on the politics of redistribution and on state preferences and capacity. In both areas, there is only limited room for optimism about the outcome of the reforms.