what’s going on in east asia. the issues today a defining event of the l990s decade has been the...

What’s Going on in East Asia

The Issues Today

A defining event of the l990s decade has been the miracle and meltdown of East Asian growth

Will there be a recovery to rapid growth?

What will be the implications 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-

HkSi

10 20 30 40 50

The East Asian Development Ladder Flying Geese Pattern

Stage 1

Stage 2

Stage 3

Stage 4

Primary Products

Labor Intensive Manufactures

Hi Tech Manufactures

Services (high level)

Abundant cheap land and labor

Low Cost Labor

Capital Intensive, Technically Sophisticated

Products

Domestic and International Services

The Development Ladder--Stages

The Relay Race

More Advanced Country

LessAdvancedCountry

Industry

Stage 1

Stage 2

Stage3

Stage 4

The Stages of the Product Cycle Process 1950-65 1965-1980 1980-1995 1995-2010 China

Korea

Taiwan

Philippines

Malaysia

Indonesia

Thailand

Singapore

Japan

Hong KongThailand

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

Input-based GrowthSavings and InvestmentForeign Direct Investment

Productivity, Technical Change

Investment and Growth

Exports and Growth

The Sources of East Asian Growth: Policy

Export Promotion versus Import Substitution

Exchange Rate Policy Macro Policies For Stability Selective Industrial Policies

The East Asian Crisis: What Happened?

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% of

GDP late l996 attack on the baht

The East Asian Crisis: What Happened?

early1997, collapse of the finance companies and bank runs

July l997 collapse of the baht Intervention of IMF

high interest rates, credit crunch cut in budget deficit

Drop in demand, investment, consumption, etc

The East Asian Crisis: What Happened?.

1998 Deep Recession Decline in GDP -10 percent, industrial

production -20% Change of government. Late l998, signs of stability at low

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 or bubble economy?

Was it institutional (cronyism)? Was it caused by capital flow liberalization? Was it a loss of confidence in Asian

currencies (contagion)? Was it caused by international

speculators?

The East Asian Crisis: What Went Wrong?

Domestic Considerations Speculation and the Business Cycle

Cost and Capacity pressures Overinvestment Failures of Regulation Crony Capitalism

The East Asian Crisis: What Went Wrong?

International Factors Overvaluation of Exchange Rate Loss of Trade Competitiveness Excessive Short Term Capital Inflows International Contagion

The East Asian Crisis: What Went Wrong?

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 optimistic 28.6 2.4 1.5 1.1 +5, moderat. optimistic 45.2 4.9 24.7 27.2 0, uncertain 11.9 11.0 34.5 25.0 -5, worried 13.1 37.8 36.1 41.3 -10, very pessimistic10.2 43.9 3.1 5.4

The East Asian Crisis:What Happened?

Evaluation of Return to Rapid Growth in Thailand

(8/98) (8/99) (8/00) (%) (%) (%)

+10, very optimistic 10.4 5.3 1.1 +5, moderat. optimistic 31.2 43.3 31.2 0, uncertain 13.0 23.5 29.0 -5, worried 33.8 25.1 28.0 -10, very pessimistic 11.7 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 (credit

crunch) Infrastructure Education

Can one be optimistic about renewal of the growth process?

Implications of “New Economy”?

For Hardware Industry For Software Development For Applications

The Gainers and the Losers

Gainers--High tech Taiwan Singapore Korea Malaysia

Gainers--Low wages China Vietnam India

Loss of Competitiveness Thailand Indonesia

Opportunities Openings for foreign investors Favorable Exchange Rate Fire Sales Linkages to growing industries--e.g.

auto parts Barriers

Recession in local markets Uncertainty about exchange rate Risks of Political Change Insufficient skilled engineers and

managers

Implications for Business