business envmt in east & southeast asia

7/31/2019 Business Envmt in East & Southeast Asia

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UNDERSTANDING THE MACROECONOMIC

BUSINESS ENVIRONMENT Of EAST AND

SOUTHEAST ASIA

A Reader

H.C. Blomqvist


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Definitions of terms

East and Southeast Asia comprises the region roughly situated south of Russian

Siberia and East of India. See Figure 1.

Figure 1. Map of East and Southeast Asia

Note that the terminology is not always clear. Sometimes the whole region is referred

to as East Asia especially in economic contexts. Sometimes China + Korea +

Japan are called Northeast Asia, sometimes East Asia. Moreover the following

labels are often used:

Far East, meaning roughly the same as East and Southeast Asia

Asia-Pacific: East and Southeast Asia + Australia and Pacific island states

Pacific Rim: All countries bordering to the Pacific Ocean (includes the

American side).


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In this reader, we use Asia for short when referring to East and Southeast Asia.

ASEAN is the Association of Southeast Asian Nations, the most important vehicle

for co-operation and integration in Asia. All Southeast Asia countries are members.

ASEAN + 3: A loose co-operation structure between ASEAN and China, Korea and

Japan; aims at establishing a free trade area (and maybe more) in the long term.

NICs or NIEs: Newly Industrialised Countries (Economies); refers traditionally to

Hong Kong, Korea, Singapore and Taiwan (but de facto todayseveral other countries

could also be included).

The importance of Asia in the world economy

Asia as a whole (including India etc.) accounted for 60 percent of the global

production as late as 1820. The share reached its lowest level after World War II with

18.5 percent in 1950 and was 37 percent in 1998 (Bigsten 2002). East and Southeast

Asia accounted for 31 percent of the worlds population and 00 percent of its exports

in 2000. Foreign Direct Investment1 inflows to Asia (excluding Japan) has been

dominating among developing countries 2 and comprised 60 percent in 2002. See

Table 1.

Table 1. FDI inflows to Asia, USD billion

2001 2002

Source: United Nations (2003): World Investment Report. N.Y. and Geneva.

East and Southeast Asia, excluding Japan, absorbed 21 percent of global inwardFDI

on average 1991-96. (Japan took only 0.3%.). In 2002, East and Southeast Asia

received 13 percent, excluding Japan, while Japan received 1.4%. As to outward

flows, Asia (exclusive of Japan) accounted for 5 percent in 2002 and Japan foranother 5 percent. Between 1991 and 1996, on average, the figures were 11 percent,


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excluding Japan, while Japan alone accounted for 7.5 percent. Note that the figures

may differ rather drastically from year to year.

The direction of the FDI flows has changed over the years: In the 1980s and 1990s,

Southeast Asia was the major recipient, while recently (after the Asian crisis 1997-98)

China has become the leading recipient. Note that inwards FDI to Japan was very

small until recently. However, during the last few years Japan has received increasing

volumes of FDI, partly as a result of deliberate policy.

In the global economy, Asia interacts mainly with North America and Europe (the so-

called triad), while the rest of the world is more or less marginalised. Note also that

the economic relations between Asia and North America are much closer and more

developed than those between Asia and Europe. See Figure 2.

Figure 2. The triad

NorthAmerica

Europe

East Asia

Some basic economic facts

A characteristic trait for the region is its heterogeneity:

N.B. the size of the Japanese economy: Japan alone accounts for 65 percent of

the regions production (but only 29 percent of its exports). Note that these

figures used to be much higher. Chinas share of production is about 15

percent and its share of exports is 15 percent, too.

Some of the worlds richest countries and territories are in Asia (Japan, Hong

Kong, Singapore) but also some of the poorest (Myanmar, Laos, Cambodia).

Endowments of resources are very diverse. Some are rich in natural resources(many Southeast Asian countries), some have abundant low-skilled labour


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(China, Indonesia, Philippines), some are very capital-abundant (e.g.

Singapore), etc.

Economic and political systems are very diverse. Some (like China, Vietnam

and Laos) are still one-party (nominally) socialist economies, some veryliberal market economies (such as Hong Kong).

Some are very large (China) and some very small (Singapore, Brunei).

Diversity seems to provide scope for a beneficial division of labourin the region. The

Asian development has been development ofinterdependent economies. Much of the

trade and FDI flows are intra-regional. This reduces the dependence of the region on

trade cycles in other parts of the world. On the other hand, trouble in one major

economy spreads easily to the rest of the region, as shown by the Asian crisis in the

late 1990s.

There are also common traits, however, with occasional exceptions:

High growth rates on average over the long term

High rates of savings and investment

Emphasis on education and health care

Structural change

Economic development is regular accompanied by a restructuring of the economy.

The share of the primary sector (agriculture etc.) decreases while that of industry

increases. Finally, the service sector tends to take over as the dominant sector. For

Asia, see Table 3.

Income distribution

East and Southeast Asia are known for growth with equality, i.e., the income

distribution has usually not deteriorated despite high rates of growth. Note that the

income distribution may be crucial for the sustainability of growth; only a reasonably

even distribution makes mass markets for goods and services possible. Note also that

distribution factors may be important for foreign investors how to plan their

investment and marketing strategies! See Table 4.


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Table 3. Sectoraldistribution of GDP, %

Country Agriculture Industry Services

1970 2001 1970 2001 1970 2001China 42 11 45 66 13 24Indonesia 35 16 28 36 37 48Philippines 28 20 34 34 38 46Thailand 30 8 26 44 44 48Malaysia n.a. 23 n.a. 43 n.a. 49Korea 30 5 24 44 46 51Hong Kong n.a. 0 n.a. 14 n.. 86Singapore 2 0 36 31 61 69Japan n.a. 2 n.a. 37 n.a. 61

Source: Dowling & Valenzuela, World Bank.

Table 4. Income distribution, 2000

Income share ofbottom 20%

Income shareof top 20%

Top 20%/Bottom 20 %

Share of pop.With less than

1$/day

China 5.9 46.6 8.0 22Indonesia 9.0 41.1 4.6 8

Malaysia 4.4 54.3 12.4 4Philippines 5.4 52.3 9.8 27Thailand 6.4 48.4 7.6 2Vietnam 8.0 44.5 5.6 n.a.FINLAND 10.0 35.8 3.6 n.a.

Source: Kokko 2003.

Health status

Health is another indicator of development; see Table 3. Health status is closely, but

not perfectly, correlated with national income per capita.

Education and technology

Table 5 shows some indicators of the level of education and technology, both

regarded as paramount for successful economic development.


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Table 3. Helth indicators

Life

expectancy2000

Underweight

children

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