Review on the East Asian Economies of 10 Years after Asian Monetary Crisis

くらし学際研究所13/10/2009

Nobuyoshi NishizawaProfessor of Kinki University

Contents

1 Lessons from Asian Monetary Crisis (AMC)

2 Movement of regional integration in East Asia

3 Changing economic power map of East Asia

4 Sustainability economic development in East Asia

Conclusion

1 Lessons from Asian Monetary Crisis (AMC)

• What are problems?

Foreseen, possible or not

Serious economic depression

No technical progress

(1) Inconsistent triangle

Stability of foreign exchange

Freedom of capital movement

Independence of monetary policy

(2) Market fundamentalism

• Thailand accepted the conditionality of IMF in exchange for accommodating a loan.

• However, there is a possibility that the tight policy strictly in line with market principles that was taken to redress the current and fiscal imbalance might get the economy into serious slump.

(3)Krugman’s Criticism→Innovation

A

K

L

Technical progress

Capital

Labor

△Y/Y

Rate of economic growth

△Y/Y= A/A+α K/K+β L/L △ △ △

α+β ＝１

Total factor productivity analysis

2 Regional integration in East Asia

• Disappointed with the US and APEC

• Japan provided lots of ODA through Miyazawa Plan.

• China didn’t devalue the Yuan.

• movement of regional integration in East Asia

• ASEAN +3 Summit was regularized

ASEAN

ASEAN

EAST ASIA

ENLARGEMENT OF INTEGRATED AREA

(1) Progress in economic cooperation

• to prevent the reoccurrence of monetary crisis

• Chianmai Initiative was started in 2000

• Funding scale→ US$120Billion

Korea

China

ASEAN

Japan

8 21

6

23.56.5

10

2

Image of Chianmai initiative

Unit: billion

(2) Accelerated integration of ASEAN

ASEAN1967

AFTA1993

ASEAN101999

ASEAN COMMUNITY

2015

Step 1 Step 2 Step 3 Step 4

(3) East Asian Community (EAC)

• The report titled “Towards an East Asian Community” was submitted by the EAVG.

• The EAC was set as a long-term target at the ASEAN+3 Summit held in KL in 2005.

• There are many fields such as economy, politics, environment, disaster and infectious disease that countries in East Asia should cooperate each other.

(4) Integration in fact

• The close network of production in East Asia has already been formed with the active FDIs by the companies of both Japan and NIEs.

• The rate of regional trade within East Asia has reached 54.2% without institutional framework that is larger than that of NAFTA and somewhat smaller than that of EU.

（ 2003）

Regional trade

(%)

Out-regional trade

(%)

EAST

ASIA

54.2 45.8

EU15 60.3 39.7

NAFTA 44.9 55.1

3 Changing economic power map of East Asia

1 rapidly growing China

2 newly emerging India

3 ASEAN10 developed into one big economic sphere

4 declining economic

power of Japan

CHINA

INDIA

ASEAN

ASEAN

JAPAN

Basic indicators of ASEAN+3

Population

(mil.)

Nominal GNI

(bil.)

Real GDP

(bil.) (2000=base)

PER CAPITA

Real value of trade(bil.)(2000=base)

China 1318 3229 2387 1811 1971

India 1124 1171 771 684 352

ASEAN 563 1227 848 6495 999

Japan 127 4530 5206 38096 1307

(1) China leading Asian economies

• China embarked on drastic economic reforms in 1978.• It grew at annual average rate of 9.8% for nearly 30

years from 1979 to 2008.• A big factory of the world to an enormous market of the

world.• Foreign reserves of more than US$ 2 trillion

China

The US&

EU

EXPORT

40% of total export

Trade of China with neighboring countries　（ 2006）

China

ASEAN

Japan

Korea

IndiaE91.6

M92.7

M92.7

E44.5 M69.4

E14.5

M7.8

E69.1 M65.2

E: export of China

M: import of China

Unit: billion

(2) Emerging India

• Mixed economic system from 1947 to 1980s

• New economic policy in 1991

• Robust service sector

• High rate of consumption over GDP

(3) ASEAN as one economic sphere

• The economic scale of ASEAN10 is almost close to India.

• Cambodia, Laos, Myanmar and Vietnam (CLMV) are transforming their economies to market economy.

• GMS Program is launched by ADB.• Japanese government is paying much

attention on the economic development of Mekong region.

((４４ ) Declining economic power ) Declining economic power of Japanof Japan

Period of low economic growth rates since 1991, experiencing long serious economic sump.

The share of Japanese GDP over world total reduced from 18% in 1995 to 8% in 2008.

The ranking of nominal GDP among OECD fell from 3rd in 2000 to 19th in 2007.

According to the IMF outlook, the GDP of Japan may be exceeded next year by that of China.

Advance of Japanese companies to abroad

• From the survey of Japan Bank for International Cooperation (2007)

• The rate of overseas production increased from 12% in 1988 to 30% in 2006.

• The Japanese companies mainly proceeded to NIEs, ASEAN, China, US and EU.

Voting for promising countries

2003

(%)

2007

(%)

China 93 70

India 14 50

Vietnam 18 35

4 Sustainability of economic development in East Asia

• Less dependence of East Asia on the trade with US and EU

• Activate regional trade within East Asia

• Diversify the trade partners of outside

(1) Trade and investment in East Asia

• Such figure is becoming clear that Japanese companies earn profits in the growing Asia instead of aging Japan.

• As new investing areas, Vietnam with abundant labor and India changing into a big market in near future are attracting much attention.

• However, there is a characteristic that the trade of East Asia is heavily depending on the US and EU.

Trade structure of East Asia

• The trade of East Asian has registered big trade surplus against the US and EU, while China has trade deficit against Japan, Korea and ASEAN.

• The trade of intermediate goods and parts shows big deficit, while that of manufactured goods, surplus.

• In regional trade, parts of computer and electronics and chemicals have deficit.

• They are imported through regional trade and assembled in China and ASEAN, then exported as final goods to the US and EU.

Triangle trade

Japan&

NIEs

China&

ASEAN

The US&

EUEXPORT OF FINAL GOODS

MANUFACTURING

ASSEBLINGCONSUMINGEXPORT

OF PARTS

(2) Population by Household Disposal Income (HDI) in Asia 1990-2008

HDI 1990

(Mil.)

2008

(Mil.)

Less than 1,000 1,100 230

1,001～ 5,000 1,160 1,900

5,001～ 15,000 100 750

5,001～ 35,000

(middle class)

140 880

Growing middle class

• They are purchasers of household appliances such as washing machine, ice box, television, air conditioner, as well as modern goods such as personal computer, DVD and mobile phone.

• They tend to spend much money to education and health.

UpperClass120 m

Middle class880 million

Lower class 2 billion

(3) Diversify trade partners outside East Asia

• to diversify poles such as India, Russia, Australia, New Zeeland together with the US & EU to absorb goods and services produced in East Asia

• To redress the worldwide imbalance was a main theme of G20.

INDIA

AUSTRALIA & NEW ZEELAND

US & EU

Russia

EAST ASIA

Potentiality of India

• India is a country that is regarded as one of the most promising countries.

• However, 34.7% and 79.9% of population are living under one dollar and two dollar per day respectively, according to World Development Report 2007.

• The population will increase by nearly 16 million every year in India. As a result, the population of India will exceed that of China in around 2030.

Conclusion

• Today, the interest of the world is in how to correct the worldwide imbalance, especially the big deficit of the current account of the US.

• To achieve this, it will be the key both to diversify poles to absorb goods and services produced in East Asia, and to increase domestic demand within Asia, focusing on raising up their standard of living of the 2 billion poor in Asia.

• The EAC that was a by-product of the AMC has been again highlighted because Japanese new Premier Hatoyama recently proposed it at the Japanese-Sino Summit in Sep. 2009.

• The EAC may be a economically significant proposal, if it considerably contributes to the increase in demand within East Asia and reduction of the poor in East Asian.