[A-List] Japanese economic crisis and wider effects
Michael.Keaney at mbs.fi
Wed Mar 20 05:52:32 MST 2002
Japan becomes part of south-east Asia's problem
By John Thornhill
Financial Times: March 20 2002
The corporate members of the Keidanren, Japan's mighty industrial association, once drove the economic "miracle" that lifted millions of south-east Asian people out of poverty.
Starting in the 1960s, corporate Japan's investments in manufacturing plants in south-east Asia turned the region into one of the most dynamic, export-generating corners of the globe.
"The importance of Japan to south-east Asia can hardly be exaggerated," Mohammed Ariff, executive director of the Malaysian Institute of Economic Research, recently told a conference in the Keidanren hall in Tokyo. "It has been a source of admiration and inspiration for many Asian countries. There is so much we owe Japan."
Through thrift, ingenuity, and hard work, Japan proved that an Asian country could compete with the leading industrial nations of the world. Other Asian countries shamelessly copied Japan's model. They also benefited from its strong currency, which amplified the purchasing power of its increasingly rich population. Japan's lavish overseas development aid (ODA) budget, largely aimed at south-east Asia, helped compensate for the ravages of the second world war.
But compliments about Japan proved short-lived in the Keidanren hall. Speakers from south-east Asia criticised Japan for its economic malaise, which they said was depressing the whole region.
The yen's sharp slide against the US dollar in 1997 had contributed to the Asian financial crisis and the renewed weakness of the yen was again threatening economic turmoil. The speakers' message was blunt: Japan has become part of Asia's economic problem rather than part of its solution.
It is true that Japanese investment and bank lending to the 10 member countries of the Association of South East Asian Nations (Asean) have dropped sharply in the late 1990s, undermining the region's growth prospects. The current weakness of the yen will further slow Japanese companies' investments in south-east Asia and may deter Japanese tourists from visiting the region. Japanese demand for south-east Asian exports will also shrink if the yen continues to slide.
What is worse, from Asean's perspective, is that Japan's benign economic leadership is being challenged by a ferociously competitive China. Not only has China won the bulk of the foreign direct investment committed to east Asia, it is also ousting south-east Asian exports from the Japanese market. Many Japanese companies are now diverting their own investments into mainland China, often with a view to exporting more cheaply manufactured goods back into Japan.
In an interview, Yashuhiro Yamada, director general of the overseas department at Japan's external trade organisation (Jetro), said that since last August China had overtaken the US to become the single biggest national exporter to Japan.
"In the medium to long term I do not expect China to push Asean countries out of the Japanese market," he said. "But in the short term, with the competitiveness of Chinese companies, it is theoretically possible."
Moreover, an increasingly self-confident China is beginning to assert its economic interests. Last November, Jiang Zemin, China's president, proposed the creation of afree trade area with Asean within a decade - a suggestion no south-east Asian can afford to ignore even if it means further opening up their markets to more competitive Chinese goods.
Chia Siow Yue, director of the Institute of Southeast Asian Studies in Singapore, said that south-east Asian countries could do more to restructure their own economies but still had to develop ties with China.
"There is an increasing realisation that south-east Asia cannot stand by itself. It is a small market of 500m with low purchasing power," she said. "Even if our economies are fully liberalised we cannot compete with China. So if you cannot beat them, join them."
Beijing's latest initiative, in what Japan has traditionally viewed as its own economic backyard, appeared to sting Tokyo into action. On a sweep through Asean countries earlier this year, Junichiro Koizumi, Japan's prime minister, promised that his country would soon undertake its third "major reform" (after the Meiji restoration and post-second world war reconstruction) to regenerate its economy.
"I know that the countries of Asean are awaiting Japan's structural reform and the subsequent return of a dynamic Japanese economy," Mr Koizumi said in a speech in Singapore. "I realise that when it comes to the global economy, rain does not fall on one roof alone."
Mr Koizumi also proposed a closer economic partnership with Asean, developing trade links and co-operating in areas such as science, technology, education and tourism. He pointed to the recent bilateral free trade agreement between Japan and Singapore as a pattern for future co-operation.
However, other Asean countries know that Japan will never open up its agricultural sector to food imports, limiting the prospects for broader trade agreements. They also believe that Japan's good intentions cannot be fully realised until its economy rebounds.
"The Japanese economy must be revived as quickly as possible," said Mr Ariff. "If it continues to slumber it will have very bad prospects for the economies in our part of the world."
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Mercuria Business School
michael.keaney at mbs.fi
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