New Asian Economic Crisis?

Jay Moore research at
Wed Dec 6 19:06:17 MST 2000

Cooling U.S. Economy Spells Trouble for Asia
 Outlook: Just as things are looking up after '97 crash comes a slowdown in
the vital American market.

Los Angeles Times, December 5, 2000

By TYLER MARSHALL, Times Staff Writer

    HONG KONG--Barely three years after Asia began climbing out of its
financial crisis, the region's economies once again seem headed for trouble.

     While no one is predicting a repeat of the dramatic crash of 1997, the
picture is not pretty. Steep stock market declines, weakening currencies and
mounting political uncertainties in several countries all now drag on Asia's
industrial growth.

     Lingering bad debt from the 1997 crisis--a debt equal to 20% of the
region's total output--merely adds to the difficulties.

     But Asia's most serious potential problem brews over the horizon,
outside the region: the slowdown of the U.S. economy after nearly a decade
of unprecedented growth. That spells trouble in capital letters for a part
of the world where prosperity lives--or dies--on the ability to export

     Any significant cutback in U.S. demand for Asian imports, especially
for information technology products such as semiconductors and other
computer-related hardware, would seriously affect the region as a whole,
analysts on both sides of the Pacific believe.

     Recent evidence indicates that is now starting to happen. U.S. computer
and chip giants such as Dell, Intel and Apple have reported sales well below
projections or have scaled back their estimates for 2001. Gateway, the
fourth-largest U.S. computer manufacturer, followed suit last week with a
blunt warning that its fourth-quarter sales are falling far short of earlier

     Analysts note that companies that over-ordered components in
expectation of stronger demand are likely to cut back even more sharply.

     With global growth of computer sales slumping much more than U.S.
experts had predicted, the prospects for maintaining demand for components
seem increasingly bleak.

     As the dizzying growth in technology cools, so too does the need for
all those electronic products from Asia.

     "Retailers are cautious, and that will make things frost over in Asia,"
said Stephen Dube of Wasserstein Perella Securities in New York.

     Some Countries Especially Vulnerable
     Countries such as Singapore, Taiwan, Malaysia and South Korea, all with
strong high-tech industrial sectors, are especially vulnerable to such a
slowdown. In South Korea, for example, information technology products
accounted for nearly two-thirds of the country's third-quarter growth in

     Although political instability in the region has played a role in
weakening the currencies of some Asian nations, financial analysts believe
recent sharp declines in both the South Korean won and the new Taiwan dollar
are at least partly intentional as both governments fight to make their
exports cheaper, and thus more attractive, to a shrinking number of buyers.

     "Asia is facing a second shock that, unlike the crisis three years ago,
is an [external] blow to . . . the region," concluded Geoffrey Barker, chief
international economist at Hongkong & Shanghai Banking Corp. in Hong Kong.
He said the bank's latest forecast for Asia's exports "points to a
significant deceleration in growth within the next three months, and
overseas leading indicators suggest rapid deterioration thereafter."

     The stakes are high for the United States, and especially California.
In today's closely intertwined world economy, a weakening in Asia also means
a smaller appetite for American products--notably technology goods, of which
California is a major supplier.

     Although California officials reported last week that the state's top
26 export markets all showed positive growth during the first nine months of
the year--with 24 of them posting double-digit gains--an Asian slowdown
would mean a very different picture for next year.

     The impact of such a change on the state's economy would be
significant: California's exports to Asia's 10 largest economies added up to
$40.6 billion over the first nine months of this year--equal to 43% of the
state's total.

     Adding to Asia's gloom, the world's two biggest economies--the United
States and Japan--have both adjusted growth prospects downward in recent

     The U.S. Commerce Department on Wednesday revised the country's
third-quarter growth from an estimated 2.7% to 2.4%--the lowest increase in
four years. On the same day, Japan reported industrial output for October
rose at an anemic 1.5%, less than half the level expected.

     For Asia's economies, none of this news is good.

     "We're in the process of revising our forecasts [downward] now,"
declared Dong Tao, senior regional economist for Credit Suisse First Boston
in Hong Kong.

     Some analysts now predict dramatic growth declines for next year in at
least several Asian economies.

     Hongkong & Shanghai Banking, for example, estimates Hong Kong's gross
domestic product growth will sink from nearly 10% this year to below 4% in
2001; South Korea's growth will be cut in half, from 8% to 4% over the same
period; and Singapore's will fall by nearly that much--from 9% to 5%. The
region's weaker economies will also suffer, with Indonesia's output growth
falling from an estimated 4% this year to 2.5% next, and the Philippines
from 3.3% to just 2% in 2001.

     Not everyone believes Asia's decline will be that steep.

     "Everyone's developing their crash scenarios, but as long as data still
points to a 'soft landing' for the U.S. economy, the region is going to come
through this without major damage," said Tim Condon, chief economist in Asia
for ING Barings.

     Most agree that only China, with its huge domestic market in the midst
of transforming to a more open, Western-style economy, will continue to
perform strongly through the first half of next year. But even China's
buoyant domestic demand and the expected lowering of trade barriers that
will come with Beijing's imminent entry to the World Trade Organization are
not likely to be enough to override the impact of major slowdowns elsewhere,
analysts believe.

     Political instability in several Asian countries has dealt a triple
blow to local economies. It has weakened confidence among local investors
already shaken by the downturn of world markets that began last spring. It
has dampened the appetite for foreign investment, long considered a crucial
ingredient for growth. And it has sharply diminished the prospects that
governments will risk what little political capital they have left to push
unpopular reform measures to modernize banking systems and reduce the
mountains of bad debt that remain from the 1997 crisis.

     Only with the elimination of that debt can enough money be available to
fuel the next cycle of Asian growth when it comes, analysts say.

     Indonesia Lurches From Crisis to Crisis
     Indonesia, Southeast Asia's biggest country, is one example of the

     The Jakarta equities market is off by nearly 40% since the start of the
year and the nation's currency, the rupiah, is down 20% as President
Abdurrahman Wahid searches for some semblance of stability. Among his latest
challenges: reviving confidence in the country's central bank, accused of
widespread misuse of emergency international loan funds. The bank's acting
governor and four of his deputies resigned two weeks ago; its governor,
Syahril Sabirin, accused of corruption, languishes in detention. There are
no obvious replacements in sight.

     As Wahid's government lurches from one crisis to another, nearly $1.5
billion in private foreign capital fled the country during the first half of
this year. Only strong harvests and the country's improved oil revenue have
prevented greater economic trouble, analysts believe.

     In the Philippines, the economy has been slowed by fallout from the
impeachment of flamboyant President Joseph Estrada amid accusations that he
pocketed more than $10 million in gambling and tobacco taxes. Much as in
Indonesia, that fallout has included a plunging currency, a stock market in
the doldrums and deflated investor confidence.

     The influx of foreign capital has slowed to a trickle--from a peak of
$1.5 billion in 1998 to only $118 million during the first half of this

     In both the Philippines and Taiwan, where President Chen Shui-bian has
been under such attack that the opposition has launched a recall campaign
against him, the business communities have tried to defuse the atmosphere,
albeit with mixed results.

     In late November, a group of leading Taiwanese businessmen headed by
the formidable chairman of Formosa Plastics Group, Wang Yung-ching, issued a
strongly worded public statement aimed at politicians of all stripes that
boiled down to just three words: Knock it off. A perceptible decline in
rhetoric has followed.

     With less success, a group of leading business executives joined a
protest of destitute provincial farmers in Manila last month, calling on
Estrada to resign before the scheduled start of his trial in the Philippine
Senate this week.

     Elsewhere, political problems are less dramatic, yet still troubling.
In Thailand, for example, Prime Minister Chuan Leekpai's government has
worked hard to reduce corruption and the huge overhang of bad loans that
still amount to nearly a third of outstanding debt in the country, but
observers believe he has exhausted his political capital.

     Despite the chaotic conditions in the region, some analysts see a
positive dimension--that in each country, the leaders are democratically
elected and, in each case, their main opponents are acting within the rule
of law.

     "In the short term, it looks awful, and there will be pain," noted
Reuban Mondejar, a respected City University of Hong Kong academic.

     "But if this is a price for more stable governance for Asia during the
next cycle of growth, then there will be real benefits out of all this for
the longer term."

* * *
     Times staff writer Joseph Menn in San Francisco contributed to this

* * *

More information about the Marxism mailing list