It was inevitable that China would slow to some extent, from the very rapid pace seen for much of the past decade. The signs it needed to do so were quite evident: increasing general price inflation, escalating property prices, doubts about the process of credit growth and credit risk management, and so on. But just how big a slowing was occurring?
Foreign-currency debt can be riskier than domesticcurrency borrowing because it exposes firms to exchange rate risk if they don’t have hedges in place.8 We saw during the Asian crisis in the 1990s how sovereign debt that was denominated in foreign currency led to financial instability that exchange rate devaluations only exacerbated.