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