Experts have reservations, optimistic about Asian economies
By Ron Chepesiuk
In the summer of 1997, Asia began to feel the heat from the collapse of Thailand’s national economy. The region’s economies fell one after another like dominoes. Their asset markets collapsed, banks failed and companies went bankrupt. The crash appeared to be the end of the “Asian miracle.”
Today, no one talks about a miracle, but the Asian economy continues to rebound. The region experienced strong economic growth in 2000, peaking at 7.5 percent compared to the global growth rate of 4.2.
“Overall, the Asian economy did well, and investors showed confidence in it,” said Kent Kedl, the Minneapolis, Minn.-based executive director of Technomic Asia, a marketing strategy consulting firm.
In its latest strategy report released last December, Merrill Lynch, the leading brokerage firm, predicted global growth would decline from 4.2 percent last year to 3.1 percent in 2001. Asian economies, specifically, are expected to expand, though at a slower rate, from 7.5 percent in 2000 to 5 percent this year.
“This [drop] is hardly threatening for the economies of Asia, and greatly diminishes any chance of a repeat of the Asian crisis due to external factors,” William Belchere, a Merrill Lynch spokesman, told Business Times, a Singapore-based publication. “The bottom of the current down cycle will come as early as the first half of 2001, but it’s more likely to occur the second half of this year.”
But the volatility of the U.S. stock market, the dismal economic performance of the high-tech sector, and the slowdown of the U.S. economy has raised concerns — and questions — about the impact of such negative developments on Asia, especially in countries like Singapore, Taiwan, Malaysia and the Philippines, which are heavily dependent on technology export sales.
How will Asia’s economic growth be affected by what looks like an economic slowdown in the United States and Europe? Will the region suffer a recession? Should U.S. investors continue to pour millions of dollars into the region?
Asia’s export of electronic products to the West, no doubt, has helped it recover from the ’97 crisis. But as Judith Lee, international trade specialist with the Washington-based law firm of Gibson, Dunn and Crutcher, explained, “Many analysts are trying to figure out how the drop in the world’s demand for information technology will affect Asia’s economic growth.”
HIGH-TECH EAST
During the first half of 2000, Asia’s growth-rate in electronic sales boomed. For example, South Korea had a 94 percent increase, Taiwan a 98 percent increase, and Malaysia a 28 percent rise, according to statistics provided by Deutsche Bank. In all during that period, Asia exported $58 billion worth of information technology products to the United States — or 13 percent of the region’s entire exports.
This past fall, however, Intel, Motorola, Apple Computer, Dell Computer and other leading blue-chip multinational technology companies revised their revenue forecasts and warned that sales would be lower than expected. The plunge in the value of tech stocks in the United States and Europe in 2000 was reflected in the Asian markets. Such prominent companies as Taiwan Semiconductor Manufacturing Company and Singapore’s Chartered Semiconductor dropped 28 and 50 percent in value, respectively.
At the beginning of this year, Taiwan’s main stock index was down 40 percent; South Korea’s, 40 percent; and Thailand’s, about 33 percent. In terms of U.S. dollars, the stock markets in Korea, Taiwan, the Philippines, Thailand and Indonesia were among the world’s worst performing in 2000, according to the World Bank.
“NASDAQ being soft for the first half of 2000 was certainly bad news for many of the emerging countries in Asia,” said Gary Hufbauer, senior fellow at the Institute of International Economics, a Washington-based think tank that conducts international economic analysis. “I believe the possibility of a recession in Asia exists — if the U.S. information technology sector continues to perform poorly.”
While not predicting recession, Jeffrey Arpan, chairman and professor of international business at the Darla Moore School of Business at the University of South Carolina, believes exports and investment in the region will drop if the U.S. economy falters.
“A reduction of U.S. consumption because of a recession or of consumer confidence will likely lead to a reduction in exports from Asia; that certainly won’t help the region,” Arpan explained. “A U.S. slowdown might also result in less direct foreign investment in Asia and less expansion of existing facilities there. Some Asian-based Western companies that aren’t making a profit might even close down.”
LOOKING AHEAD WITH CAUTION
With demand in the United States waning, Asia now looks vulnerable, World Bank President James D. Wolfensohn said in an interview in Tokyo this past December. “I think it’s not yet clear what the outcome is going to be,” Wolfensohn added. Stopping short of predicting a recession, he acknowledged that investors were concerned.
AsiaTech Ventures, the Palo Alto, Calif.-based venture capital firm, has about 70 percent of its assets ($200 million) invested in 50 companies based in the Asia-Pacific region. The company hit a low point last year, beginning in April when the U.S. stock market took a dive. “Until last April, it was pretty easy for our investments to raise additional money, but now they are feeling the crunch,” said Peter Chu, AsiaTech’s managing director. “We got them started, but they need more money from the public market to grow. That’s difficult to do in the current economic environment.”
Many Asian investors are nervous because of the growing economic uncertainty, Chu added. “I wish we had a crystal ball,” he said. “Are we going to have a hard landing, a soft landing? Hopefully, the question [of where the global economy is headed] will be settled in the first six months of this year, and we can go back to business.”
CHINA’S OUTLOOK
Not all Asian economies are tied closely to the performance of the Western tech sector, however. The economies of China, Indonesia and Hong Kong, for instance, don’t depend on tech exports, and tech manufacturing makes up only a small percentage of their activity.
In 2000 China’s economy grew 8 percent, buoyed by strong exports and record government spending, according to Chinese government statistics. The Gross Domestic Product (GDP) totaled $1.1 trillion, surpassing the trillion-dollar level for the first time. The GDP growth rate beat the government’s target of 7 percent, according to Xinhua, the Chinese news agency that cited figures released by the National Bureau of Statistics. The country’s GDP, according to official figures, has increased an average of 8.3 percent annually.
No one knows for sure, however, how accurate those government statistics are. “The Chinese government often exaggerates the stats it releases to the public,” Hufbauer said. “So taking some exaggeration into account, the figure [is] probably closer to 6 1/2 to 7 percent, which is still decent.”
More impressive is the Chinese stock market — which shot up 30 percent last year.
The year 2000 was an absolutely great year for China, according to Wendy Cai, CEO of Hagglers.com, a New York City-based e-business that delivers buying and selling information to Internet users. Cai visited the country frequently last year.
“China is making great leaps,” Cai said. “The joke in Shanghai is that if you go to the city every two weeks, you’re going to see a different Shanghai.”
The government reforms launched in recent years, especially in the area of state-owned enterprises, has been a major factor for China’s economic surge. Much more will have to be done in the years ahead, however, if the country’s economy is to continue its strong economic growth.
“The reforms have been great, but everybody knows that China’s banking system is in need of serious reform,” Hufbauer said. “ Will China continue on its reform course? That’s the big question in the next five years.”
Asia is waiting for China’s entry into the World Trade Organization (WTO), which is expected to happen this year.
The possibility of WTO membership has spurred China to initiate reforms. With WTO status, China would offer Asia a huge market of some one billion consumers, some analysts believe. It has also stimulated to foreign investment in China. In the first half of 2000, foreign direct investment was up more than 20 percent, and investment continued in the second half, even though signs indicated that the global economy was slowing. In July and August, for example, Shell and Motorola announced major investments in China of $4.5 billion and $1.5 billion, respectively.
But foreign investment has another side. “A lot of Taiwanese and Japanese money has been put in China,” Lee said. “If those investors start having liquidity problems, they could stop putting their money there.”
She added: “The reality of the new economy — no country is isolated. What happens in China could reverberate in Latin America and vice versa.”
China’s economy may be robust, but given the current investment climate, some Western companies are beginning to have difficulty finding the right financial backing. “We have always sought out the unique investor who has an understanding and appreciation of the Chinese market,” said David Carroll, CEO and CFO of BESTeDEAL, a New York-based product company that was founded by Chinese American entrepreneur Kenneth Chen. “But it’s been difficult to find the right investors in recent months. The investor mood is cautious.”
Kedl, who visits China several times a year, still believes 2001 will be a great year to invest in China. “Fantastic deals can be had in China, “he said. “The best opportunities, I think, are in the traditional industries, which are taking advantage of the country’s large and mature labor force and improvements in the infrastructure.”
China is expected to lead Asia’s booming growth in e-commerce. During the past year, Asia’s dot-com environment hasn’t been as shaky as that found in the United States. A study conducted last summer by the research firm Forrester predicted the surge in Asian e-commerce will result in $1.6 trillion in revenues by 2004, accounting for more than 20 percent of worldwide spending, which is projected to reach $6.9 trillion. So while Asia’s strong economic growth is expected to slow in 2001, investors continue to view the region positively.
“Asia is the best place in the world to invest for long-term growth and security,” Kedl said. But he added, “It’s important that each investor carefully assess and qualify each move. Moving quickly in Asia is often the kiss of death.” |
