During the fifteen months since the Asian financial crisis began, China has remained a remarkable source of stability. While other currencies have declined by as much as 80 percent relative to the dollar, the exchange rate between the Chinese yuan and the dollar has been unchanged at 8.3 yuan to the dollar.

But as the financial crisis drags on and widens to include Hong Kong and others in Asia and elsewhere, some government officials and financial investors are beginning to worry that the Chinese currency may also be devalued. If that happens, it would likely start a new round of further devaluations in Thailand, Indonesia, and other countries that compete with China. A decline of the Chinese yuan would also make financial investors more pessimistic about other emerging market currencies, including Mexico and Brazil. The Chinese might be tempted to devalue the yuan to promote exports and increase GDP. China's growth rate of about 7 percent this year is falling short of past growth rates and of the 8 percent predicted by the government, making it hard to absorb the millions of workers who are losing jobs in China's industrial restructuring.

Despite this potential gain, we are betting China will not devalue the yuan. The favorable impact of a devaluation on economic growth would be quite small, since exports are less than 20 percent of China's GDP and part of the higher competitiveness that would come from devaluation would be offset by the increased cost of imported components that would result from the weaker yuan. These small gains would be more than outweighed by the adverse effects on China of devaluing the currency. China is eager to show the world and its own people that it is a major and stable nation that rises above the problems of its smaller neighbors. It also wants to please Western governments by not triggering a further round of damaging devaluations throughout Asia. It hopes that such good performance will increase its prospects for admission to the World Trade Organization, bringing with it easier access to world markets for Chinese products.

Less tangible, but perhaps more important, is the reputational loss that would result from devaluing. Chinese leaders have told the world that they would not devalue and have described that as a "promise". While such promises are not forever, a devaluation this year would be seen as a failure to live up to a major commitment. Within China, the exchange rate decline would signal a major government failure.

But even if China doesn't choose to devalue, might it not be forced to devalue if financial markets sell yuan just as they have forced other devaluations? That is very unlikely for three important reasons.

First, if foreign speculators want to sell yuan, the Chinese government has more than $140 billion of dollars and other foreign exchange reserves that it can use to buy yuan and prevent its value from falling.

Second, China has a substantial net trade balance with the rest of the world, a current account surplus of 2 percent of China's GDP, or about $20 billion in 1998. That means China does not need credit from the rest of the world to pay for its imports. The countries that have been attacked by speculators have been those with large and unsustainable current account deficits that require large foreign lending to finance their imports.

Finally, China requires private investors to have government approval to exchange yuan for foreign currencies if they want to make financial investments. This policy of not having full capital account convertibility protects China from the speculative flows that have destabilized other countries.

The situation in China is complicated by the developments in recently reacquired Hong Kong, which has pegged its exchange rate at 7.7 Hong Kong dollars to the US dollar while imposing no restrictions on capital flows. Although that has been a successful policy in the past, the sharp decline in the other Asian currencies has caused the relative value of the Hong Kong dollar to rise by more than 15 percent since 1996. Speculators have concluded that the Hong Kong dollar is therefore overvalued and have been selling them. The Hong Kong government has pushed up interest rates to defend the Hong Kong dollar, despite the resulting sharp fall in local real estate and stock market prices. Speculators are betting the Hong Kong government will not be able to sustain that contractionary policy and that the Hong Kong dollar will drop when it ends. But that is far from a sure bet since Hong Kong has very large reserves and a substantial current account surplus. Speculators also underestimate the desire of Hong Kong authorities to distinguish themselves from the weaker economics of their region and to show that the return of Hong Kong to China did not lead to a weakening of its currency.

While the situation in both China and Hong Kong will continue to worry governments and tempt financial speculators, we're betting that China will enter next year and perhaps the next millennium with its currency unchanged. That may give enough time for the rest of Asia to become more stable.

Martin Feldstein, the former chairman of the Council of Economic Advisers, and his wife, Kathleen, also an economist, write frequently on economics.