Strong yen spurring Asia growth

Strong yen spurring Asia growth

By Yoshitake Shimizu

TOKYO: The yen's recent appreciation has contributed greatly
to the booming economies of Asia.

The sharply increasing direct investment by Japanese companies
in Asian countries helps strengthen their production bases and
boosts their workers' wages. This also helps expand exports of
finished products from those nations.

Although the yen's strength has damaged the Japanese economy,
it is having a strong positive impact on the economic growth of
these Asian countries.

Toyota Motor Corp., which had been very cautious about
entering the Chinese auto industry despite China's requests, has
officially announced that it will produce passenger cars in China
jointly with a Chinese company.

Toyota President Tatsuro Toyoda said the company will begin
negotiations on joint passenger car production in China with
Tianjin Automotive Industrial Corp. Toyota affiliate Daihatsu
Motor Co. already provides technical support to that firm.

Toyoda also said the company has been negotiating with another
Chinese firm to jointly manufacture automobile engines and auto
parts in China.

To promote domestic production of vehicles and auto parts, the
Chinese government bans foreign assembly lines from producing
vehicles with foreign parts, and seeks instead foreign companies
willing to introduce their parts production system into China.

The Chinese government had requested the Toyota group, which
has strong ties with affiliates making auto parts with high-
quality technology, to enter the Chinese market.

Toyota took a cautious stance because the company puts
emphasis on profitability and automobile production, rather than
parts production.

However, the company decided to enter the market as its
Japanese rivals and U.S. and European auto manufacturers are
rushing to enter the huge Chinese market, it is believed.

Meanwhile, Honda Motor Co, and six Honda group parts makers
plan to produce auto parts in the Philippines, starting in the
spring of 1995.

Toyota's decision to enter the Chinese market was partly
because of its weakening competitiveness, in terms of export
prices, caused by the stronger yen.

Meanwhile, the Honda group's plan to begin production in the
Philippines is intended to start reverse exports of motorcycles
and passenger cars to Japan. It will benefit from lower labor
costs in the Philippines, which will offset the negative impact
from the yen's rise.

A Honda executive said that production in the Philippines
"means we will be able to cut production costs by 15 to 20
percent."

In South Korea, a sharp increase in exports has boosted
domestic capital investment, which is helping in its economic
recovery. The yen's rise, which is creating hardship for Japanese
exporting industries, is promoting the increase in South Korean
exports.

The long-Term Credit Bank of Japan said South Korea is
enjoying a rise in price competitiveness as a result of the yen's
appreciation.

The yen's exchange rate vis-a-vis the U.S. dollar has remained
strong since last year while the won has been stable against the
dollar at 800-810 won. As a result, South Korean products have
gained a competitive edge over Japanese goods, in terms of
prices.

South Korea's gross national product growth rate was 8.1
percent in the April-June quarter of this year, following a
growth rate of 8.9 percent in the previous quarter.

The country's exports and capital investments grew 15 to 16
percent. "South Korea's GNP is likely to show more than 8 percent
growth for the entire year," the Long-Term Credit Bank of Japan
said.

Like South Korea, Taiwan, Hong Kong and Singapore are also
taking advantage of the yen's appreciation.

Newly industrializing economies (NIEs) are registering high
economic growth as they receive double benefits from the strong
yen: capital investment in these countries is increasing due to
gains in export-price competitiveness and Japanese direct
investment is rising as firm shift production to these countries.

Another new development is the growing number of foreign
companies entering Indonesia and the Philippines since last year.

The Indonesian government had strictly limited the entry of
foreign companies, but it recently switched policy, by lifting
regulations on new entries in some fields and easing regulations
on establishment of 100 percent foreign-owned subsidiaries.

The government of the Philippines, which hopes to join the
NIEs by the end of the 20th century, approved the "Philippine
2000" program. Under the program, the government aims to promote
exports by actively inviting foreign companies to do business in
the nation. It will liberalize foreign exchange and banking
regulations and ease regulations on land acquisition by
foreigners.

Reflecting China's policy of converting its economic structure
into a market economy, the two nations are now trying to open up
their own markets to foreign nations.

Japanese companies' direct investment in China began to
rapidly expand in 1992. Japanese companies invested nearly $2.2
billion in the Chinese market in 805 separate investments in
1992, an increase of 2.7 to three times from the year before.

In 1993, their investment in China grew to 3,488 cases with
the contract value reaching nearly $3 billion.

There is now a realization in Indonesia and the Philippines
that if they continue to impose strict regulations on foreign
firms, Japanese and other foreign corporations will invest in
China and other members of the Association of Southeast Asian
Nations.

Japanese firms' overseas direct investment peaked in 1989 at
more than $16.2 billion.

Japanese investment in Asia has shown a sharp rise. In
particular, investment in the Chinese market has doubled since
fiscal 1991 while the shift of production bases to Asian nations
due to the yen's rise contributed to the expansion of local
industries.

During the period of the yen's strength against foreign
currencies after the Plaza Accord, the Thai and Malaysian
economies grew rapidly as Japanese corporations shifted
production there. This resulted in expansion of production volume
in these nations. It also helped boost wage levels, resulting in
expanded consumer spending. The production capacity of these
nations rose through all these processes.

The yen's appreciation has forced Asian nations to strengthen
their industrial base.

The Japanese machinery industry's local parts procurement
ratio has grown to about 50 percent. And if Asian nations' parts
industries develop further, local procurement by Japanese firms
will also expand, enabling the firms to cut production costs even
more.

But these developments will cause three serious problems for
Japan: excess facilities, excess workers and pressure to lower
prices.

Asian nations are catching up with Japan through technology
transfers from Japan. The only way for an economically mature
country like Japan to continue as a front-runner is to keep
creating new business and industries.

-- The Daily Yomiuri