NEW YORK-“The Asian crisis is overstated; the real problem is Japan,” said Joseph W. Duncan, chief economic adviser to The Dun & Bradstreet Corp., Murray Hill, N.J.
“The other countries (in the region) have currency and stock-market weakness, but they will continue to play a significant role in trade and their economies will recover,” he said at a Dun & Bradstreet seminar on “Surviving the Asian Crisis.”
Despite its troubles, which have been brewing for this entire decade, Japan cannot be ignored as a focus for companies outside its borders. Its economy remains the second-largest in the world and, after China, in the region, said John Lawler, Dun & Bradstreet’s vice president for business development in the Asia-Pacific, Canada and Latin America.
“The best thing Japan can do for Asia is fix its own house because it is the primary market in the region for other Asian countries,” he said. “On the other hand, the currency situation lowers the cost base of Japanese companies, making them more competitive outside Asia … so they are going back to traditional methods of stealing market share.”
Lawler said he returned to the United States recently after spending two years in Japan, where Dun & Bradstreet worked with Tokyo Shoko Research to develop a business-failure predictor scorecard.
Bankruptcies are increasing, even among publicly traded companies, the unemployment rate is going up, consumer spending is flat or declining and the credit of Japanese companies no longer is propped up artificially, he said.
Also, the keiretsu system of cozy supply relationships among Japanese companies is breaking down under competitive pressures. Testimony of this and related factors creating windows of opportunity come from a recently released United Nations survey of multinational corporations worldwide. Some 90 percent of manufacturers that responded said they will maintain or increase their foreign direct investment in Japan over the next several years.
“It is very difficult to be optimistic in the short term about growth in Japan, but strategically there are opportunities to gain market share through alliances, acquisitions and organic growth,” Lawler said. “Take advantage of weaknesses in Japanese companies by being more aggressive in how alliances are set up.”
China, Asia’s biggest economy, has overtaken Japan as the region’s country having the largest trade surplus with the United States, said Yang Shao, Dun & Bradstreet’s director of business development for Asia. But even China, which has experienced the largest sustained economic growth in world history throughout the past 20 years, has seen its rate of Gross Domestic Product increase level off consistently since 1993, she said.
That growth was fueled by foreign trade with other Asian nations, which now can undercut Chinese products on price. There also has been a marked decline in foreign direct investment in China, 80 percent of which had come from other Asian countries.
Led by a “professional technocrat,” China’s new development plan calls for spending $3 trillion during the next three years on infrastructure, including telecommunications, power, transportation and pollution control, she said. The plan also calls for developing a high-technology industry sector.
China has a middle-class consumer market of about 250 million people, most of whom live near its coastline. Of these, 1 million are millionaires. The average personal savings rate in the middle class is 36 percent of income, more than double the nationwide average in the United States.
Yang said market surveys indicate the Chinese middle class in the 1990s has “three bigs” in terms of purchase priorities: a mobile phone, a water heater and an air conditioner. Some 10 million Chinese owned a mobile phone at the end of 1996, the latest year for which she cited subscriber numbers.
“Telecommunications equipment is open for foreign investment, but telephone service is not yet,” she said.
Foreign businesses evaluating China can take some comfort in the fact that the federal government has made a strong commitment against devaluation of the yuan, which is not fully convertible into dollars. There also are opportunities arising out of the privatization of many kinds of state-owned enterprises.
However, there are many risks, not least of which is that the dismantling of cradle-to-grave social services will cause political unrest. Yang also cited a U.S.-China Business Council Survey, which identified numerous commercial risks, including high costs of doing business, lack of access to yuan-denominated loans, bureaucratic interference, poor transportation and low quality of locally derived components and raw materials.
“If China wants to become a real superpower, it must do more for market reforms,” she said.
