From crisis to crisis

In the crisis of the late 1990s, China was unscathed for two key reasons. It benefited from a closed capital account and a nonconvertible currency -- ignoring the IMF-sponsored orthodoxy of international finance and enabling it to hold the renminbi stable at a time when other Asian currencies were collapsing. And it drew support from a proactive fiscal policy -- mainly accelerated infrastructure spending -- that enabled it to offset the weakness of external demand in Asia and elsewhere in the world.

Unlike the home-grown Asian crisis of the late 1990s, the global crisis of 2008-09 was a far more serious threat to China. It hit the Achilles' heel of an unbalanced...