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Asiaweek: A Region In Pain
10/9/2001 1:25 am Mon
SEPTEMBER 14, 2001
A Region In Pain
With systemic problems plaguing the region and the economic news from the U.S.
mixed, there's no end in sight for Asia's ills
Doctor, it hurts everywhere! Unfortunately, there is no medicine that will cure what's
ailing Asia anytime soon. The current slump may have started with the pricking of the
U.S. technology bubble last year, but it has exposed imbalances in Asian economies
that took years to develop and will take as long to fix.
Japan is headed into recession again. And as Prime Minister Junichiro Koizumi faces
rising opposition to his reforms, it's hard to decide whether to urge him on (because
restructuring will get Japan out of its funk) or hope he slows down (because
restructuring will throw thousands out of work and could prompt a financial crisis).
Economies from South Korea to Singapore are regretting placing so many of their
eggs in the technology export basket. Squeezed by falling demand and overcapacity,
industrial production is slowing or falling everywhere - bad news in a region where
manufacturing is king. Indonesia and the Philippines are also battling political
uncertainties, and many banking systems remain stuffed with bad loans left over
from the 1997 crisis. China is still growing. Its exports are mostly not tech-related,
and it has a vast domestic market. Private and public investment in housing,
factories and infrastructure all remain strong. But China cannot pull the whole
regional economy by itself. What of the U.S.? News this week that U.S.
manufacturers increased production in August for the first time in nine months is
encouraging. But consumer confidence is eroding - worn down by job losses and
stock market woes. Recovery was supposed to start in the second half of 2001.
Now analysts say early 2002, or midyear, or . . . .
Falling exports means billions of dollars of lost income. Can domestic demand take
up the slack? Consumption is still growing in most of East Asia, but at rates one- to
two-thirds slower than last year Hard-hit companies are slashing spending. Private
investment growth this year in Hong Kong may fall by half to 7%. In Taiwan it's
expected to decline 3%. Cuts today may mean less business tomorrow
Asian producers are selling as many memory chips as ever, but prices are down 90%
from last year. No one wants to lose market share, and some say the only hope for a
capacity cut and for higher prices is for the South Korean government to let Hynix
go bust The good news is most Asian nations have relatively healthier foreign
reserves and currency regimes compared to 1997, so another financial crisis is
unlikely. The bad news is that they no longer have big budget surpluses, so they can't
spend their way out of recession
As if the current downturn weren't enough, many Asian nations are still working off
the 1997 crisis. Indonesia faces $25 billion in public and private foreign debt
maturing this year. That's $116 for every man, woman and child - in a country where
over half the population lives on less than $2 a day.
With job insecurity on everybody's mind, the online recruitment sector is thriving in
Hong Kong. Traffic to job sites jumped from 236,000 visitors in April to 347,000 in
June, according to Internet trend watcher NetValue. The most popular site is
part-time.com, which also attracts more young people than any other.
Big cars are losing ground among Singapore drivers. Mercedes, BMWs and other
luxury autos with engine capacities of 1,600 cc and above made up just 36% of sales
through July, down from 38% last year. The segment had been in the fast lane since
1991 when it accounted for just 24% of sales, slowing only during the 1998
recession. Total car sales are still up, but buyers these days are opting for more
economical models. Top choice - the humble Nissan Sunny. The model accounted for
one out of every five cars sold so far this year.
High tech is trickling down - with a vengeance. Hitachi is laying off 10,000
workers in Japan dan 2,600 in Singapore. The Hewlett Packard/Compaq merger
could cost Asia up to 13,000 jobs.