MAIN PAGE | EVENTS & PROGRAMS | 2002 | IGM | AVAILABLE SPEECHES | SAYLING WEN
PACIFIC BASIN ECONOMIC COUNCIL
MAIN PAGE | EVENTS & PROGRAMS | 2002 | IGM | AVAILABLE SPEECHES | SAYLING WEN
Striving for Growth
in a Challenging Environment PBEC 35th International General Meeting
Kuala Lumpur, Malaysia May 3-7, 2002 Sayling Wen East Asia: Re-positioning East Asia consists of countries and regions extending from Japan, Korea, China, Taiwan, Hong Kong to the 10 countries of Southeast Asia. 2 billion people live there, which is about one third of the world population. These countries and regions have close ties in culture and history. Let's see what has happened in East Asia since World War II. I. East Asia's Development after World War II (1945-1995) Let's check the track of East Asia's development during the 50 years after 1945. 1. Export-oriented Japan invaded and engulfed almost all of East Asia during World War II. After the war in 1945, East Asia followed Japan in establishing export-oriented industries as their main money earners. Postwar Japan was in recession and had the worst of all economies. With the guidance of the U.S.A., Japan started her export-oriented industries. According to history, during that period, many patriotic Japanese took their lives because they could not engage in these export-oriented industries and contribute to the country. It is this export-oriented strategy that helped save and develop the economies of East Asia, led by Japan. 2. "Wild Geese Formation" Theory This theory was raised by some Japanese scholars. It explains the shift of export-oriented industries in East Asia. Japan - the leading goose started the export-oriented industries, which led to the huge reserve of foreign currency income; this in turn led to the appreciation of the Japanese Yen, and eventually led to wage hikes in Japan. At this stage, Japanese companies shifted some of their export-oriented manufacturing to the second row of geese - the "Four Little Tigers", namely Korea, Taiwan, Hong Kong and Singapore. In the same fashion, when the "Four Little Tigers" developed their export-oriented industries, made money and raised the cost and exchange rate, some of the export-oriented work was in turn shifted to the third row of geese - the Southeast Asian countries. As the theory goes, eventually the majority of the export-oriented work will end-up in the largest goose - China. Looking back at that 50 years development track, we can see this Wild Geese Formation Theory is pretty accurate. 3. The "Supply" Economy The result is that all of East Asia has developed into a "Supply Economy". Every member is engaging in production for export to the markets in North America and Europe. North America and Europe have long developed into the "Consumer Economy", by contrast East Asia has developed into a different "Supply Economy". 4. Competing Against One Another Since everybody is exporting, competition is inevitable. This fierce competition exists not only among the Four Little Tigers or between Southeast Asia and China, but also among the provinces and cities in China. This was the development track of East Asia for the 50 years between 1945 and 1995. II. The Watershed Year: 1995 Several major events happened in 1995. That's why I consider 1995 an important watershed year. 1. Internet Became Widespread In 1994 the world-wide-web standard was fixed. In 1995 internet use became widespread. Many people call 1995 the beginning year of the Internet Age. From the figures, we can see the trend. According to the NUA, the internet user population in 1995 was 26 million; but by February 2002 it had increased to 540 million in the short 7 year time. 2. East Asian Financial Crisis - Caused by the Oversupply of Industrial Products The second major event was the East Asian Financial Crisis, which broke out in 199 7. This crisis has a root-cause: oversupply of industrial products. Japan and the Four Little Tigers invested in and set up many factories in Southeast Asia in the 80s and early 90s and exported to the world. The sign of oversupply started to appear in 1995, then came the imminent East Asian financial crisis in 199 7. The East Asian financial crisis was the natural result of oversupply worldwide. 3. Economy in China: Accelerated Development a. Foreign Direct Investment (FDI) in China The third major event was the accelerated development of China's economy. From the FDI figures, we can see a steady flow of US$40 billion being invested into China each year since 199 5. This has vacuumed the FDI for other East Asian countries. b. Gross Domestic Product (GDP) of China We can also tell this from China's GDP statistics. The GDP doubled during the period from 1995 to 200 1. This shows the speed of the development in China. c. China's Foreign Exchange Reserve In 1995 China's foreign exchange reserve totally was US$73.6 billion; while by 2001, it had tripled to US$212.2 billion. The above figures show us that China, with its huge 1.3 billion population and quality labor-force, joined the East Asia's Supply Economy, It has created tremendous impacts. Three major factors: internet prevalence, East Asian financial crisis, and the accelerated economic development in China, all caused major changes in East Asia after 1995. III. East Asia in 2002 1. Most of East Asia's Countries and Regions, Except China, Can Only Expect Low Economic Growth From this chart we can see the trend clearly. 2. Unemployment Rate Will Rise From the chart, we can see that all the countries are experiencing high unemployment, except Korea, especially Hong Kong, Singapore and Taiwan, because the labor jobs are rapidly being taken over by the cheaper labor force in China. 3. China's Entry into WTO Stirring Up "China Fever" Again China is not only a mighty manufacturing base of the Supply Economy, but also has become a huge potential market. Thus, "China Fever" is on again. 4. ASEAN Free Trade Area (AFTA) Is On The Horizon The ASEAN Free Trade Area of 10 countries will start to move ahead from 2003 onwards. 5. Slow Spread of Computer and Network vs. Fast Spread of Mobile Phone There is an interesting phenomenon: between the two symbols of Network Society, the computer spreads slower in East Asia while the mobile phone spreads faster than in Europe and America. We can say that in a Supply Economy, close personal communication is essential, that's why the mobile phones spread fast. As for the reason for slower spread of the computer and networks, that is probably because the operating systems for computer and networks are developed by Westerners and present some difficulty for Asians to learn. 6. New Strategies Needed If we stick to the present development strategies, we won't be able to cure the economic slow down and the unemployment rate rises. Facing so many changes, new strategies are called for. IV. New Strategies for East Asia's Economic Development 1. Explore What Consumer Needs In East Asia, when the economy slows down, we always devote ourselves to product improvement and cost reduction, but we do not to explore consumer needs the way they do in America and Europe. In an oversupply world, the best strategy is actually to explore the consumer's new demands. 2. Open Home Market Opening a country's own market can lead to more interactions among consumption behaviors. For example, McDonalds' entrance into China has created much business for the support activities and in surrounding areas. We all know purchasing is a kind of mentality. I am not in a buying mood, but, if you buy and he buys, I will buy as well. 3. Cut Down the Investment in Production (Including China) The investment in production in East Asia is over-done. In 1997 we already saw massive oversupply nearly on everything. The world, including China, should cut down their investments in production so as to ease the oversupply of the world. 4. Establish the Network Society - a High Living Standard but Low Cost Society The high cost Industrial Society is not the only society that can give us a comfortable life, the invention of Network Society will make our dream - a low cost but high living standard society come true. 5. Transform from "Supply Economy" to "Consumer Economy" The world is already oversupplied. The 2 billion people in East Asia should gradually transform from Supply Economy to Consumer Economy. East Asia has one-third of the world population, huge savings and potential consumption power, which should make East Asia the largest market in the world. The above are effective strategies for East Asia's continued economic development. 6. Re-positioning of East Asian Countries and Regions Under these new strategies, East Asian countries and regions should re-position themselves. The worldwide oversupply, the accelerated development in China, and the near saturation in American and European markets, make re-positioning the top on our agenda. V. How to Re-position? 1. Re-position the Core Competence of Export Industries In the times of export-oriented strategy, the Wild Geese Formation theory, and supply economy, a country will do whatever it can to attract foreign investment and generate foreign income. But now many industries are facing the problems of overlapping and over investment. Many companies are shifting to a low cost production base, but then this low cost production base will soon be over-taken by another lower cost production base and the shift will go on. The lesson for us is that a country can not depend on ANY export-oriented industries, but has to choose the ones with core competence, so as to develop them fully for the long-term on the solid foundation of each country's unique location, population, cost structure, and resources. 2. Re-position the Foreign Exchange Rate Since China joined the industrial race in East Asia with her mighty production power, making it extreme difficult for other East Asian countries and regions to compete, adjusting one's exchange rate is considered as a tool to remedy the situation. When we export, the quote is in U.S. dollars, which is the currency for income, but our cost has to compete with quotes made in China's Ren Min Bi. Under this circumstance, every country and region has to re-position its exchange rate taking into account both the exchange rate of US dollars and China's Ren Min Bi. It is not the best way simply to lower the exchange rate to keep the labor-intensive industries at home. What is the guideline? My suggestion is to adjust the exchange rate to the degree that the chosen export-oriented industries with core competence can stay and develop locally. 3. Re-position Social Structure It is destined for every country and region to transform from "Supply Economy" to "Consumer Economy." This will inevitably bring re-positioning in social structure. In the Supply Economy, the social structure is based on the model of export-oriented strategy, attraction of FDI, earning foreign currency, and then transferring it into local service industries. But, in the Consumer Economy with the new consumption-oriented strategy, the social structure needs re-positioning based on the market driven model, which is very different. 4. Re-position Resource Development The world is heading for a Network Society, which will consume less resource. At this moment, countries try very hard to conserve natural resources and keep them for future generations. But, in the next 10 to 20 years, the world will gradually transform from Industrial Society to Network Society, which will depend heavily on telecommunications, computer, and software, very little on natural resources. So, I suggest we re-think the strategy of resource development. Maybe we should find a way to "cash in" the natural resources quickly before they lose their value, get the money and invest it into other areas that would give us better future perspectives, like human resources, educational resources, etc. 5. Re-position Local Characteristics Tourism is no doubt the second largest industry in the world, with US$ 4 trillion in revenue and employing 230 million people in the year 2000. We can see its great potential in the next 10 years, when people all over the world will spend less time at work and more time in leisure. However, tourism needs re-positioning as well. East Asia should identify each tourism spot and develop it with unique local characteristics and culture. 6. Re-position Education System We can see in East Asia that many fresh, young graduates cannot find jobs. Besides the fact of industries undergoing restructuring, another reason is that the current education system fails to train talents that meet the society's needs. The education system of the agriculture society cannot train talents suitable for the Industrial Society. By the same token, the education system of the Industrial Society cannot produce talents good for Network Society either. Re-positioning of the education system is very essential. In my book "Future of Education", I point out that education, besides should develop personal capacities, should also train talents needed for society's transformation. Our society is transforming, so our education system needs re-positioning. Chart Your Own Safe Course It is vital importance for the East Asian countries and regions to identify and to understand their own characteristics and re-position themselves. Nevertheless, this may not be that difficult as it sounds. I am not saying that we should constantly change ourselves. No society is so completely flexible. What I want to emphasize is that we should chart our own safe course. I remember a story about the Amazon. Under this famous river, there are many dangerous reefs. A skipper had been sailing in the Amazon for more than 40 years without any accident. Someone asked him," You must know every rock in the river?" The skipper smiled and replied, "No, I only know a course without any reef. For these 40 years, all I did is follow this course." Today, to re-position a country or region does not mean to compete with other country or region, or to evade the impact of others, but to find a safe course here in East Asia. This is probably the best method of re-positioning oneself. |
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