Sunday, January 21, 2001
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Posted on: Sunday, January 21, 2001

Major shifts taking place in East Asia's economies

By Glenn Scott
Advertiser Staff Writer

Public opinion pollster Neil Newhouse knew he was preaching to an unlikely choir last week when he explained to an audience at the East-West Center that Americans don' t care much about foreign trade issues.If his message came as a small surprise for participants of an executive forum at the center in Manoa, it also offered context to a conference built on the need for thorough discussions on strategic trade issues in Asia.

Views on East Asia

Japan - New high-tech efforts could finally move an iceberg

China - Economic growth strains a centralized system

South Korea - Questioning the wisdom of an impatient recovery

Newhouse, a partner with Public Opinion Strategies of Alexandria, Va., told the group of executives and academicians that voters polled during the recent presidential campaign ranked foreign trade as a minor issue compared with domestic topics such as Social Security, public education and medical insurance.

"Americans are very internal looking," he said. "If anything, we believe that what we do in the United States affects all other countries, but what they do doesn' t really affect us."

Newhouse was among more than two dozen experts who offered their perspectives on the latest shifts in economic and political patterns in Asia, particularly on three East Asian countries that Hawai' i-based companies often watch.

Newhouse wasn' t the only speaker to make surprising comments, either.


No one went against the grain more gladly than Sachio Semmoto, a highly successful telecommunications engineer who last year began eAccess Ltd., one of the first industrial technology startups in Japan. Contrary to conventional predictions that Japan' s economy will remain sluggish for a few more years, Semmoto forecast a resurgence to begin in another six months, starting with rising stock values.

With government support for high-tech initiatives finally ensured late last year, he said, entrepreneurial tech companies such as his will ignite a new stage of the information revolution. His company, for instance, will be the first in Japan to provide high-speed cable Internet service, fitting with a government goal to deliver high-speed access to at least 30 million households.
A dealer makes his move during morning trading of the U.S. dollar at the Korea Exchange Bank in Seoul. Some economists question the wisdom of an impatient economic recovery in the country.

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"This involves a huge amount of investment in IT in Japan," he said. Semmoto said he has lined up $45 million of investment from Goldman Sachs, Morgan Stanley Dean Witter and others and figures to soon close a deal on another $50 million.

It will be that sort of international investment, combined with ongoing corporate reforms, he said, that will enliven Japan' s economy and give consumers confidence to spend more again.

"The year 2000 was the turning point for Japan, just as 1996 was for the United States," he said. "Finally, Japan is starting to change, which is also good for Hawai' i' s economy. The country is rich. If people were more comfortable spending, they would be more optimistic about traveling."

Though bullish about startups, Semmoto conceded that real structural change must come from Japan' s large corporations. He pointed to companies like Fujitsu and NEC, where new chief executive officers have been leading campaigns to increase flexibility and profitability.

"They have very solid minds to change their companies," he said.

Pointing out that Japan surpassed other countries once it adapted modern manufacturing skills, Semmoto said the same could occur with the next generation of information technology.

"For Japanese people, it takes time to change," he said. "But once we cross a threshold, the company as a whole will jump in."

Economist David McClain, while lauding Semmoto' s ambition, said Japan still needs to address some sizable issues before the country can expect its real gross national product to grow by more than 1.5 percent a year. A key concern, he said, is finally disposing of the huge debt of bad bank loans that has burdened the national economy, equaling as much as 20 percent of the GDP in the early 1990s.

McClain, dean of the University of Hawai' i College of Business Administration, likened the bad debt to a $1 trillion iceberg that, though hidden, has stopped progress. "This iceberg, which has become gradually more revealed, has really accounted for a decade of sluggishness," he said.

McClain said that U.S. trade policy toward Japan should take a "soft approach" to promote an economic rebound. Solutions are complex. By increasing its money supply, he noted, Japan can eventually resolve some debt. But if a larger money supply were to weaken the yen too much, it would hamper the recoveries of other Asian-Pacific economies that rely on Japan.

"As goes Japan," said McClain, "so goes Asia and, really, so goes much of Hawai'i."


John Thomson, a former U.S. foreign service officer in Beijing and now the managing editor of China Online Inc., suggested that business people regard China not as a country but a continent with regions of distinct culture, climate and dialects.

The economy of that China-continent grew by an estimated 8 percent last year, and the value of exports rose to an estimated $240 million - about a quarter of the GDP, he said. Foreign direct investment continues to increase from current levels of about $40 billion a year. With World Trade Organization requirements coming, Thomson said the source of investments is likely to shift from overseas Chinese groups to multinational companies. Economists predict such investment could reach as much as $100 billion in a few years.

China still needs great progress to comply with WTO rules. Thomson said China needs to make or amend about 2,000 laws. For foreign businesses, he predicted, the big gain once WTO rules are in effect won' t be reduced tariffs, as many free-traders have supposed. Rather, the important benefits will be the right to own and operate distribution sites, more open transactions and a better investment environment.

As the world' s largest coal producer, China suffers predictable pollution problems. For foreign companies, though, the problems present openings for extensive environmental protection services.

The Internet, too, is beginning to yield opportunities. Thomson cited the case of Stanley Works, a longtime U.S. toolmaker. The company posted a request for toolmaking bids on a Web site,, and received 1,000 bids in a week, he said. Now the company wants to boost its supplies from China.

"I would characterize what we' re seeing in China as an accumulated acceleration of change," Thomson said. "It' s a compound effect."

Weighing that change, Thomson and Susan Shirk, an international relations professor at University of California, San Diego, agreed that China' s communist government will be forced to adapt to hold power over the next decade.

Said Shirk: "The current political system is not up to the task."

Thomson said one outcome could be the creation of a confederation, with regions more loosely linked than under today' s centralized system. Under that scenario, he said, Taiwan might eventually find a way to fit into the system. But Shirk, a deputy assistant secretary of state in the Clinton administration, said Taiwanese people aren' t likely to welcome unity unless they see material gains.

She noted, though, that under any scenario, Taiwan needs to face the importance of good relations with the Mainland. "Even if Taiwan were an independent country," she said, "it would still have to come to terms with the much larger neighbor."

South Korea

When Ungsuh Kenneth Park looks at the willingness of the Japanese people to work unhurried through their economic difficulties, he suggests the strategy isn' t as wrong as Western critics contend. In Japan, he says, life is still good. People are happy. So why, he asks, should they risk social upheaval to change?

Then he observes that his own South Korea took the opposite approach in healing the wounds of the Asian financial crisis.

"We took the road of rapid recovery," said Park, an economist, professor and the chief executive officer of KOHAP Corp., a Korean petrochemical company.

That rapid road has not been without success, but to Park, it has been a rocky one in which urgent restructuring brought immediate discomforts. For example, 52 of the country' s 100 largest companies failed, and 23 major banks shrank to 13. But those efforts also produced fast results. By September 2000, the country had made its final installment to repay its emergency loan from the International Monetary Fund.

The cost of that quick turnaround, Park said, has been a deterioration in the traditional social contract and a huge strain on the institutions of South Korea' s emerging democracy.

The problem, he said, has been the awkward vacillation of government policies. The first calls for sacrifice evoked a shared willingness to accept change and losses for the sake of the overall group, he said. But later, as the economy improved and businesses grew more complacent, government leaders occasionally caved in to the demands of labor groups and those who sensed that the harsh insistence on capitalism was producing uneven rewards.

The recovery moved like that, with alternating policies creating fitful results and sometimes forcing banks into situations where, he said, "It was only natural to stop lending, to just become a vault."

The recovery has been hard to measure. In November 2000, he said, the Korean stock market remained in decent shape, with about 34 percent of its capitalization from foreign investors. Then the won depreciated by 12 percent - although Park predicted the won won' t remain that weak - to 1,250 to a dollar.

Now Park believes a new government resolve to use public money to resolve bank debt will shore up recent concerns about a repeat crisis. He noted that in the last three months, about $2 billion in foreign investment has reached the stock market.

Still, he wonders if South Korean society can rally around its traditional ethic of priority on the group good - whether public pressure groups are ready to accept the decisions of a real democracy.

"All of society is losing the essential glue," he said. "Where we' re heading is a serious question."

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