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THE ASIA BOOM : China Sets the Pace as Cash, Concrete Pour Into World's Hottest Economic Region

November 29, 1994|SAM JAMESON | TIMES ASIA ECONOMICS CORRESPONDENT

In times past, Asian business people could judge the outlook for their own companies by watching the economy of the United States, their biggest export market. More recently, they watched Japan.

Now, a third locomotive of growth has burst forth on the Asian scene.

"China has become an engine, and the principal one for the Pacific region," Lawrence Krause, a professor at the University of California, San Diego, wrote in the annual prospectus of the Pacific Economic Cooperation Council. Exports to China now play "a large part in forecasts for continued growth" of many Asian countries, the professor explained.

Although Western economists are just beginning to take notice, Asian businesses, even countries, are finding their fortunes increasingly linked with the soaring growth of the mainland giant, now in its third straight year of double-digit expansion.

For instance, Charoen Pokphand, Thailand's biggest conglomerate, popularly known as the CP Group, already does half its business in China and expects that from now on more than 50% of its revenues and the bulk of its growth will come from China.

"New opportunities are available in China that are not available in Thailand," Boonmee Chongpison, assistant senior vice president of CP Petrochemical Co., explained in his Bangkok office.

In Japan, Mabuchi Motors, one of the world's largest manufacturers of miniature motors used in electronic devices in automobiles, appliances, cameras and toys, is about to become one of the first Japanese manufacturing firms to dismantle all of its factories at home. It has tied its future, indeed its survival, to China, where 80% of its production is now being carried out.

After the firm closes its last machinery factory in Japan early next year, only 1,000 of Mabuchi's 39,000 employees will remain in Japan--in headquarters and research and development jobs.

The Daewoo Group of South Korea has set up 11 joint ventures in China in the past two years. By the year 2000, it expects to operate as many as 50 firms there, doing about $3 billion worth of business, about half in automobiles, according to Sah Jae Chul, a managing director of Daewoo Corp.

Lee Kuan Yew, Singapore's senior minister, says some Asian nations will find their annual gross national products increased by up to 1% because of China's growth.

The U.S. market still takes between one-fifth and one-third of each Asian country's global exports. In the 1970s, a 1% increase in the U.S. economy raised Asian GNPs by the same percentage. But now a 1% American increase produces only one-fifth of that level in Asian growth, a reflection of relative decline in economic influence, says Kwan Chi-hung of Nomura Research Institute in Tokyo.

Neither a U.S. recession, nor a setback in Japan, nor a two-year plunge in Japanese foreign investment--Asia's second engine of growth--thwarted robust growth in Asia in the early 1990s. Economists failed to predict or even explain the phenomenon, Kwan pointed out.

"The majority view persists that, when the United States sneezes, Asia catches a cold. . . . Economists still focus on the U.S. growth rate when projecting growth in Asia," Kwan explained.

What they overlook include these developments:

* China not only has become a "giant industrial park" in which other Asians produce for export to third countries, it also is emerging as a new market itself, increasing intra-Asia trade.

* The peripheries of "Greater China"--Taiwan, Hong Kong and Chinese living in Southeast Asian countries--have led the boom in investing in China but are now being joined by other Asian nations.

* Foreign construction companies are playing a major role in developing China's infrastructure. Meanwhile, Southeast Asian nations, fearing that China's boom might lure investors away from them, have begun to work on bottlenecks in their own infrastructures, triggering an Asia-wide spree of spending on telephones, roads, bridges, ports, airports, power plants, waterworks and sewers.

* Despite a decline in foreign investment in Southeast Asia, all Asian countries this year are revising upward their initial estimates for growth.

Over the horizon, as China moves from economic growth to economic clout, the potential for new problems is immense. Nomura's Kwan mentioned some of them:

Will China's demands strain the global supply of capital? Will its coal-burning power plants destroy the environment? What about the global supply of raw materials, especially oil? Can intense trade friction with the United States and other developed nations be avoided? Will the future economic giant turn into a military superpower?

But for the moment the focus is on the present, and superlatives abound everywhere in Asia.

"China is going to be the biggest trading nation in the world," said a U.S. diplomat in Bangkok.

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