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