What’s Going on in East Asia
The Issues Today
A defining event of thel990s decade has been themiracle and meltdown ofEast Asian growth
Will there be a recovery torapid growth?
What will be theimplications of the “new”economy?
What’s Going on in East Asia:From Miracle to Meltdown
--The experience:
--the growth miracle
--the l997 meltdown
--the recovery
Optimism
Stability
Pessimisim
1997
GDP 000$
per capita
Years from Start
Ja
US
Th
Ch
Tai
Ko
Ph
Ma
The S-Curve of East Asian Growth
20-
2-
5-
10-
Hk
Si
10
20
30
40
50
The East Asian Development Ladder Flying Geese Pattern
Stage 1
Stage 2
Stage 3
Stage 4
Primary Products
Labor IntensiveManufactures
Hi Tech Manufactures
Services (high level)
Abundant cheap land andlabor
Low Cost Labor
Capital Intensive,Technically SophisticatedProducts
Domestic andInternational Services
The Development Ladder--Stages
The Relay Race
More Advanced Country
Less
Advanced
Country
Industry
Stage 1
Stage 2
Stage3
Stage 4
The Stages of the Product Cycle Process1950-65 1965-1980 1980-1995 1995-2010
China
Korea
Taiwan
Philippines
Malaysia
Indonesia
Thailand
Singapore
Japan
Hong Kong
Thailand
Malaysia
China
Singapore
HongKong
Taiwan
Singapore
Hong Kong
Korea
Japan
Taiwan
Singapore
Hong Kong
Korea
Japan
Indonesia
Philippines
Vietnam
Thailand
China
Malaysia
Taiwan
Korea
Japan
Laos
Cambodia
Myanmar
Indonesia
Philippines
Vietnam
Thailand
Malaysia
China
Indonesia
Philippines
Where Does the “New Economy” fit here?
The Sources of East Asian Growth
uInput-based Growth
Savings and Investment
Foreign DirectInvestment
uProductivity, TechnicalChange
Investment and Growth
Exports and Growth
The Sources of East Asian Growth: Policy
Export Promotion versusImport Substitution
Exchange Rate Policy
Macro Policies For Stability
Selective Industrial Policies
The East Asian Crisis: WhatHappened?
The East Asian Crisis: What Happened?
Thailand was the first country in trouble
1996 Unsustainable Investment Boom fed by inflow of capital
Loss of competitiveness : Trade slowdown Trade deficit 8% ofGDP
late l996 attack on the baht
The East Asian Crisis: WhatHappened?
early1997, collapse of thefinance companies and bankruns
July l997 collapse of the baht
Intervention of IMF
u high interest rates, creditcrunch
u cut in budget deficit
Drop in demand, investment,consumption, etc
The East Asian Crisis: WhatHappened?.
1998 Deep Recession
Decline in GDP -10 percent,industrial production -20%
Change of government.
Late l998, signs of stability atlow level
1999 to 2000 recovery at 5%rate
Spread of the Crisis
Indonesia
Malaysia
Korea
but not China
Russia
Brazil
The World?????
Was it a business cycle swing orbubble economy?
Was it institutional (cronyism)?
Was it caused by capital flowliberalization?
Was it a loss of confidence in Asiancurrencies (contagion)?
Was it caused by internationalspeculators?
The East Asian Crisis: What WentWrong?
DomesticConsiderations
Speculation and the BusinessCycleCost and Capacity pressures
Overinvestment
Failures of Regulation
Crony Capitalism
The East Asian Crisis: What WentWrong?
International Factors
Overvaluation of ExchangeRate
Loss of TradeCompetitiveness
Excessive Short Term CapitalInflows
International Contagion
The East Asian Crisis: What WentWrong?
What Happened to Exchange Rates?
Evaluation of the Thai Business Environment Before the crisis 1995-6 After (8/98) (8/99) (8/00)(%) (%) (%) (%)+10, very optimistic28.6 2.4 1.5 1.1+5, moderat. optimistic45.2 4.9 24.7 27.20, uncertain 11.9 11.0 34.5 25.0-5, worried13.1 37.8 36.1 41.3-10, very pessimistic10.2 43.9 3.1 5.4
The East Asian Crisis:WhatHappened?
Evaluation of Return to Rapid Growth in Thailand
u (8/98) (8/99) (8/00)(%) (%) (%)
+10, very optimistic10.4 5.3 1.1
+5, moderat. optimistic31.2 43.3 31.2
0, uncertain 13.0 23.5 29.0
-5, worried33.8 25.1 28.0
-10, very pessimistic11.7 2.7 10.8
Is Recovery Under Way?
Will the recovery persist?
Will the growth miracle resume?
The Barriers to Recovery
Political Instability
Continued NPLs in banks (creditcrunch)
Infrastructure
Education
Can one be optimistic about renewal ofthe growth process?
Implications of “New Economy”?
uFor Hardware Industry
uFor Software Development
uFor Applications
The Gainers and the Losers
Gainers--High tech
uTaiwan
uSingapore
uKorea
uMalaysia
Gainers--Low wages
uChina
uVietnam
uIndia
Loss of Competitiveness
uThailand
uIndonesia
uOpportunities
Openings for foreign investors
Favorable Exchange Rate
Fire Sales
Linkages to growing industries--e.g.auto parts
uBarriers
Recession in local markets
Uncertainty about exchange rate
Risks of Political Change
Insufficient skilled engineers andmanagers
Implications for Business