Japan dominates Asia's economies

Japan dominates Asia's economies

By Chris Johnson

SINGAPORE (Reuter): Fifty years after Japan's army was expelled from Southeast Asia at the end of World War II, the country's economic sway over the region is greater than ever.

Japan provides more investment, more exports and more tourists than any other country and economists say its influence will continue to increase with little serious challenge from other Asian rivals as long as the yen stays strong.

The sheer size of its available capital and its dominance in high-technology industries put it in a different league from the smaller "tiger" economies of Taiwan and South Korea.

"Japan is, and will continue to be, the prime exporter of capital to the region," said Christopher Hunt, head of research at SBC Warburg in Singapore. "It's a symbiotic relationship: Japan needs lower costs while southeast Asia needs capital."

Benefiting from its position at the crossroads of Southeast Asia, Singapore was the first to leap to developed status and now has the richest per capita economy in Southeast Asia.

By 1992, the last year of available data, Japanese companies were the top investors, with Singapore $13.2 billion (US$9.43 billion) spent out of an accumulated total foreign investment of S$56.7 billion ($40.5 billion).

The first wave of investment came in the 1960s and 1970s after Japan started to make amends with its former war-colonies.

"That was the giant corporations like Sony and Matsushita," said Graham Hayward, head of the Singapore International Chamber of Commerce. "They came to make basic consumer goods. Then came support companies in the 1980s, providing things like computer disks. But many of those early arrivals have gone now."

Foreign investment has always closely mirrored the value of the investors' home currency. The biggest round of investment from Japan came after the Plaza agreement in the late 1980s which sent the yen soaring against other Asian currencies.

Today Singapore is an increasingly capital intensive economy, providing services, regional headquarters for foreign companies and support for high-technology industries, but still at a cost well below the level found in Tokyo.

Kevin Chew, at Barings Research in Kuala Lumpur, said Japanese firms were moving to high-technology industries, leaving an opening for other Asian "tiger" economies.

"In the late 1980s there was a rise in Japanese investment in Malaysia due to the sharp increase in the value of the yen, but in the past two or three years this has been overshadowed by capital from other countries like Taiwan and Korea," Chew said.

Taiwanese companies were the biggest investors in Malaysia in 1994, committing 2.9 billion ringgit ($1.18 billion), compared with 1.8 billion ($735 million) by Japanese companies and 1.3 billion ($530 million) by U.S. firms.

Southeast Asia countries are also beginning to cross-fertilize economically, with some of the biggest investment in Malaysia its neighbors. Investment from Singapore in Malaysia last year totaled 1.1 billion ringgit ($449 million) and from Hong Kong hit 0.9 billion ($367 million).

Japan's Malaysian ambassador Taizo Nakamura recently expressed concern that Japan's importance in Southeast Asia had declined, blaming it on recession, changes in the Japanese government and reduced reliance on Japanese aid.

But most economists argue that Japanese influence is not declining, but just refocusing.

"This new investment (from Taiwan) is in basic industries like in iron and steel and textiles. It is certainly no threat to Japan. Japanese levels of sophistication in terms of technology are much higher," Chew said.

Paul Schymyck at H.G. Asia agreed: "We are seeing less developed countries investing in countries with an even cheaper cost base than themselves. Japanese influence is not declining."

Many Chinese express regret that Japan and not China is the economic giant of Asia.

They believe that China could be the economic equal of Japan but for ferocious political campaigns starting from 1957 and lasting on and off until 1976 that held back the country, while Japan proceeded with its economic miracle.

Japan has become China's biggest trading partner, with trade in the first five months of 1995 worth $19.85 billion, up 28.7 percent on the same 1994 period, ranking ahead of Hong Kong, United States and Taiwan.