3. Structural issues in East Asian sustainable economic growth
Having moved beyond the recent crisis, the East Asian economy is moving back on to a
growth path. However, to prevent this from ending in a short-term recovery and sustain
growth over the mid- to long-term, East Asia will have to overcome a number of structural
issues.
* Characteristics of past East Asian economic growth
In the past, East Asian economic growth was underpinned by abundant capital and
labor inputs.
The strong growth of the East Asian economy, lauded as “the East Asian miracle”, emerged
in the 1960s as Japan launched itself on to a growth trajectory, followed by the NIEs and
the ASEAN 4 (Thailand, Indonesia, Malaysia and the Philippines) in a flying-geese pattern
which China could be described as having continued. This consistent process of
industrialization across the East Asian economy has different characteristics from Latin
America, Africa and other regions.
Firstly, in the process of industrialization, the East Asian nations all succeeded in breaking
away from primary product-focused economies. Where the ASEAN nations grew quickly in
the early 1970s based on primary product dependence, they later reduced this dependence
at the cost of lower growth rates, returning to high growth as of the late 1980s (Fig. 1-3-9).
Other developing countries, however, such as the Latin American countries, South Africa
and Saudi Arabia, have not demonstrated the V-shaped growth of ASEAN, moving along a
variety of different growth paths.
Secondly, East Asia experienced a wide-ranging policy shift from import substitution to
export promotion. The NIEs switched to export promotion as of the late 1960s, followed one
by one by the ASEAN nations in the 1970s and 80s, a trend which allowed East Asia to
achieve export-led growth based on the presence of the United States and other extraregional countries providing sufficient demand (World Bank, 1993).
Thirdly, growth was spurred by the active introduction of foreign capital. The ratio of inward
direct investment value in the gross fixed capital formation of the ASEAN 4 has risen
steadily over the years (Fig. 1-3-10), indicative of the major role played by foreign capital
injections in upgrading the ASEAN 4’s light, heavy and assembly industries, as well as their
industrial structures.
The high growth of the East Asian economies delineated above has been supported by
political and macroeconomic stability, as well as abundant labor and capital inputs. Growth
accounting analyses divide the factors explaining economic growth into the input of the
productivity factors of labor and capital, and then other factors, with the latter described as
total factor productivity (TFP). Various TFP estimates have been made, producing different
evaluations as to the degree of TFP contribution to economic growth (Appended Fig. 1-3-1),
but past research has shown that increased factor input as a result of a growing labor force
and higher savings rates has been a central element in East Asia’s high growth.
* Labor and capital input increases in the years ahead
Given growing labor and capital restraints in the coming years …
Will East Asia be able to maintain strong labor and capital input growth?
Given the continued increase in the ratio of workers to total population, many East Asian
countries have seen a turnaround in the downward slide of the labor force growth rate over
the last 10 years (Fig. 1-3-11). However, over the long-term, labor force growth remains on
the downturn, and falling population growth rates are expected to cause labor force growth
rates to slow or fall off (Appended Fig. 1-3-2).
In terms of capital inputs, investment rates have remained high due to high domestic
savings rates. Over the next 20 to 30 years, however, changes in population composition
are expected to push down savings rates (Fig. 1-3-12), which could result in lower
investment rates. Further, if falling domestic savings rates are accompanied by reduced
inflows of foreign capital, capital constraints could become much tighter.
* Greater productivity vital in sustained growth
Constraints are therefore expected to tighten over the long-term on quantitative increases
in labor and capital. Looking instead to improvements in the quality of East Asian labor and
capital, however, these have not necessarily emerged in the growth process to date. Rather,
quality seems to be deteriorating.
Growth rates for the added value of main East Asian industries also reveal that the growth
rate of the amount of added value per staff member, particularly in the ASEAN nations,
substantially undercuts the growth rate for the amount of added value for industry as a
whole, indicating that economic growth has been based on boosting the quantity rather
than the quality of labor (Fig. 1-3-13).
… overcoming structural issues and boosting productivity will be vital.
Turning to marginal capital productivity ratios, while these tend to fall in line with economic
growth, the plunge in investment rates in a number of East Asian countries, such as
Thailand, Malaysia and Korea, has been dramatic (Fig. 1-3-14).
The situation outlined above suggests that sustainable economic growth for East Asia will
hinge on overcoming structural issues in order to boost the quality of labor and capital and
also improve total factor productivity, technological innovation included.
Here inflation, human resources development and R&D, financial systems and legal
systems are examined as long-term issues toward achieving sustained economic growth
for East Asia.
(a) Infrastructure
Development of industrial infrastructure in East Asia …
A positive correlation is evident between economic scale and development of the
infrastructure which serves as the foundation for industrial activities (Fig. 1-3-15). While the
Asian crisis has temporarily dulled demand for the development of key industrial
infrastructure such as electricity, telecommunications and roads, shortfalls in such
infrastructure will become a constraining factor over the mid- to long-term. The World Bank
(1995) has valued the infrastructure investment necessary in East Asia over the 10 years
from 1995 to 2004 at US$1.3 to 1.5 trillion.
The International Energy Agency (1998) has also predicted that East Asia will require
approximately four times the electricity volume generated in 1995 in order to meet
electricity demand in 2020 (Appended Fig. 1-3-3). To meet the capital demand which this
investment will create, East Asia is injecting public funds such as Japanese ODA into
infrastructure development, while the ASEAN nations in particular have been promoting
competitive infrastructure development by actively encouraging private sector participation,
foreign capital included (Fig. 1-3-16). Examples of this include the use of independent
power producers in Thailand and Indonesia, privatization of telecommunications in
Malaysia and Thailand, and Thailand’s use of PFI in highway construction.
… will hinge on the utilization of private sector initiative and attention to quality.
While some projects are experiencing temporary difficulty because of the Asian crisis, it
remains important to promote private sector participation in infrastructure supply by
clarifying responsibility for risk and establishing accountability and monitoring mechanisms.
According to a MITI survey1, Japanese companies based in Asia are switching their
attention from quantity to quality in terms of infrastructure development, suggesting that
quality-focused infrastructure investment may take on greater importance.
(b) Human resource development and technology development
While education levels in East Asia are comparatively high …
A positive correlation has frequently been indicated between education levels and
economic growth. East Asia’s education levels are widely recognized as high compared to
other developing countries with similar income levels (World Bank, 1993). The human
capital produced by high education levels serves as an engine for management and
technological innovation and facilitates technological transfer through inward direct
investment, as well as the dissemination of this technology, and should boost total factor
productivity.
… the region still has a shortfall of the human resources for industrial and
technological development …
1
According to the Survey of Overseas Business Activities (December 1999), where only 22.2 percent of
Japanese companies based in Asia identified quantitative underdevelopment of industrial infrastructure as
a key issue in the sustainable growth of the country in which they are based, 48.8 percent pinpointed the
qualitative underdevelopment of the same.
Comparing the East Asian countries, the various indices for human resource development,
the foundation for economic growth, differ widely in terms of education levels at the different
levels of schooling from elementary and secondary through to tertiary education, as well as
the likelihood of being able to hire skilled and qualified workers (Fig. 1-3-17). Educational
quality is still an issue in some countries, such as the adoption of a two-shift system for
elementary school students. Overall, the base of management and technology-related
human resources urgently needs to be widened by improving tertiary education.
MITI’s Survey of Overseas Business Activities too indicates that East Asian supporting
industries are still receiving low evaluations, with the lack of engineers highlighted2.
Japanese companies in East Asia lean strongly toward in-house fostering of human
resources for the manufacturing and research sectors (Fig. 1-3-18).
… and in addition to public support for R&D, supporting industry networks need to
be developed through SME policies, etc.
East Asian R&D costs as a ratio of GDP are also, with the exception of Korea, low
compared to Japanese levels (Fig. 1-3-19). Given the above points, bringing out the
innovation potential of the region will require greater injections of public R&D investment,
while supporting industry networks need to be improved to facilitate the introduction of
management and technology innovation and boost productivity. In that sense, establishing
effective policies for small and medium enterprises has enormous significance for East Asia
(Column 1-3-2).
Column 1-3-2 New directions in economic support—Support for Thai SMEs
The Thai government having identified the fostering of small and medium enterprises as an
immediate policy goal in terms of providing job opportunities and strengthening the
international competitiveness of labor-intensive and supporting industries, in November
1998, Prime Minister Chuan Leekpai, Finance Minister Tarrin Nimmanahaeminda and
Industrial Minister Suwat Libtapanlop registered a request for assistance with then-Minister
of International Trade and Industry Kaoru Yosano.
2
According to the Survey of Overseas Business Activities (December 1999), around 80 percent of
Japanese companies gave a poor evaluation to supporting industries in the country in which they are
based, including 21.7 percent which noted overall underdevelopment and 58.0 percent which regarded
product quality as having improved but not to the necessary extent. Many (72.1 percent) put this down to
the lack of engineers.
In response to this request, the Japanese government sent former Director-General of the
Consumer Goods Industries Bureau Shiro Mizutani to advise the Thai government on
overall SME policy for around 10 days every month over six months from January 1999 in
the capacity of a high-level policy advisor to the Ministers of Finance and Industry.
The SME Stimulation Conceptual Master Plan developed on Mizutani’s advice pinpoints the
following as structural issues: (a) lack of R&D, (b) lack of management knowhow, (c) low
product quality, (d) lack of graduates in the technology field, and (e) the difficulty of
procuring funds. To redress these, Mizutani proposed the introduction of a corporate
diagnosis system, as well as measures to strengthen SME financing, including a credit
guarantee system, restructuring of special financing institutions, and an equity finance
promotion system. Accordingly, in June 1999, an SME development institution was
established for human resource development, modeled on Japan’s Institute for Small
Business Management and Technology, and SME stimulation was also incorporated in the
economic measures announced in August. (Economic revitalization measures formulated
by Japan in November included contribution to the establishment of a fund to assist SMEs
using the ODA overseas financing function of the Japan Bank for International
Cooperation.)
As this project entailed an expert providing direct policy proposals at Ministerial level
grounded in experience in Japan, it allowed highly transparent and effective support, and
was given full marks by Thailand as “aid with a human face”.
A similar assistance style was subsequently adopted for Indonesia, with Waseda University
Professor Shujiro Urata assisting in the fostering of local SMEs as a policy advisor to the
Indonesian Coordinating Minister for Economy, Finance and Industry.
Spurred by direct investment from Hong Kong, Japan and Taiwan, one of the world’s top
electronic industry “valleys” has been developing in the Pearl River Delta region of
Guangdong Province in China, and now supplies the world with a variety of electronic parts
(Column 1-3-3). Enjoying economies of scale, competition is expected to heat up between
this and other similar industrial clusters in East Asia.
Column 1-3-3 Electronic parts and assembly cluster in the South China Pearl River Delta
Two economic zones have been set up in the Pearl River Delta in Guangdong Province in
recognition of its proximity to Hong Kong and Macao, and this delta area, bounded by
Huizhou, Shenzhen and Dongguan to the east and around to Shunde, Zhongshan and
Zhuhai, has seen strong economic development spearheaded by foreign affiliates.
The first foreign companies to penetrate the area were Hong Kong textile, toy and watch
companies driven into China by the 1980s explosion in personnel costs in Hong Kong.
Procurement, sales and capital control were handled in Hong Kong, while Guangdong
xiang-zhen (township and village) enterprises were commissioned only with production,
creating a pattern of commerce which fully exploited both the merits of the low wages paid
to migrant workers from inner China and the distribution and financial functions of Hong
Kong.
In the late 1980s, yen appreciation pushed Japanese companies offshore, with many
starting to invest in China, guided by Hong Kong companies. Textiles, miscellaneous goods
and other light industries were the initial targets, but as of the 1990s, the scope expanded
to include cameras, watches and other precision equipment, home electrics (televisions,
air-conditioners, cathode-ray tubes, etc.), office appliances (copiers, printers, facsimiles,
etc.) and the parts for all these. Most were goods for export. Parent companies were often
accompanied by subcontracting parts manufacturers, while in some cases, small and
medium-sized parts manufacturers faced with severe domestic labor shortages came over
in groups.
Particularly in the areas of copiers and printers, the pattern of investment was as follows:
company A, the first in the industry to set up in Hong Kong, was trailed by parts
manufacturers from home, as well as Hong Kong parts manufacturers, leading company B
to establish a presence as well, which in turn spurred more parts manufacturers to follow
along. This signaled the arrival of assembly companies in the Pearl River Delta area, where
most of the world’s major manufacturers now have their main factories. These assembly
companies can procure cheap parts with early delivery dates from a highly competitive
parts industry, with the result that an average of more than 80 percent of parts are procured
locally, while more than 50 percent of the world’s copiers and printers are produced in this
area.
After Japanese companies, the next to turn their eyes to the Pearl River Delta were
Taiwanese companies. The ban on mainland investment was effectively lifted in 1987, and
companies struggling with Taiwan’s skyrocketing wages began to invest in China, focusing
on Guangdong and Fujian. In the 1990s in particular, as Taiwanese companies began to
establish a place for themselves in OEM production for US manufacturers and in computer
parts and peripheral equipment, these companies began to flock into Shenzhen and
Dongguan, where production of copiers and printers, which use highly similar parts and
technology, were beginning to cluster. There are now around 10,000 Taiwanese companies
in Guangdong, around 3,000 of which are in Dongguan.
According to Taiwanese industrial data, most production of desktop computers by
Taiwanese manufacturers has been shifted into China, and primarily the Pearl River Delta.
Further, where Taiwanese manufacturers account for around 70 percent of the world’s
desktop mother boards, half of these (in other words, 35 percent of world production) are
manufactured in China, mostly in the delta region. Similarly, 80 percent of CD-ROMs, 60
percent of keyboards, 50 percent of computer electricity sockets, 40 percent of computer
mouses, and 30 percent of monitors are produced by Taiwanese companies in China.
Moreover, more than 80 percent of the parts procurement of these companies is local, and
through the network of Taiwanese manufacturers, noted for their speed and flexibility, most
parts can be obtained at short notice with a single telephone call. Assembly beyond one
company’s production capacity can also be passed on to other companies through a
flexible network of specialist companies much like that originally noted in Tokyo’s Ota Ward.
Rated by industry as the world’s largest computer industry cluster, in addition to Taiwanese
companies, many US and Korean companies have also established computer and
computer-parts production and commissioned assembly bases in the area. Many national
companies with a top share in the Chinese computer market have their production and
development bases here too, taking advantage of the parts cluster.
Many national electronics and electrics manufacturers of televisions, VCDs, DVDs,
telecommunications equipment, telephones and air-conditioners, etc., originated in the
delta as xiang-zhen companies and privately-operated companies, using the electronic
parts cluster to assist their development. These companies now stand at the forefront of the
Chinese market, outranking foreign affiliates, and are expanding their exports and offshore
production.
In addition to the above manufacturers, the presence of Japanese distribution companies
and parts traders is also an important element underpinning the small-lot, wide-range/highfrequency, immediate delivery distribution vital in this kind of parts cluster.
Further, because the parts produced in this area can be procured more cheaply than in the
ASEAN region and elsewhere, these are purchased by many multinationals through IPOs
set up in Hong Kong, and are sent from there to assembly plants in Japan, Europe, the US
and around the world. A surprising number of micro-motors, optical pickups, chip
condensers, MR heads for hard disk drives, high-frequency coils, printed circuit boards and
other important parts supporting the world’s electronics, electrical machinery and
machinery industries are manufactured by companies with their major production bases in
the area (for example, 70 percent of the world’s micro-motors and 40 percent of optical
pickups are produced here).
More than 50,000 companies are estimated to be operating in the area. Of these, the major
parts manufacturers with high technological levels are foreign affiliates, but the region is
also characterized by the extremely strong presence of overseas Chinese companies,
namely the Taiwanese and Hong Kong companies which came in through the process
described above. At the same time, many Chinese private and xiang-zhen companies also
supply or handle the commissioned assembly of condensers, coils, transistors, wire, plastic
molds, packaging materials and other basic parts, with numerous Chinese setting up new
parts factories as spin-outs from foreign-affiliated parts companies. A large number of
Chinese companies also develop from commissioned assemblers into independent
manufacturers, and these local companies are growing steadily.
According to Hong Kong affiliates, more than half of the electronic parts used in mother
boards for low-cost computers are produced by local manufacturers.
The electronics industry in this region therefore continues to propagate itself, driven by
overseas Chinese companies, while the scope of the assembly industry supporting this has
widened from cameras and watches to copiers, printers, computers, mobile phones and
telecommunications equipment, exploiting the commonality of parts. In that sense, a selfexpanding mechanism seems to be at work in the region, with clusters breeding new
clusters (Fig. 1-3-20).
Source: JETRO Hong Kong and the Japan Machinery Export Association
(c) Financial systems
As indirect finance-oriented finance systems are inherently unstable …
The Asian crisis revealed the vulnerability of East Asian financial systems. With a few
exceptions, financial intermediary functions were left almost entirely in the hands of banks,
with only limited capital markets handling stocks, bonds and other financial instruments.
Procurement of foreign funds also leaned heavily toward short-term capital. Financial
systems centered on indirect finance and dependent on short-term capital are inherently
unstable, and, together with systemic problems such as the lack of depositor protection
systems and appropriate financial surveillance systems, these significantly aggravated the
impact on the real economy caused by the full-blown credit crunch which accompanied the
crisis.
To build a stable and sustainable growth path for the Asian economy, it will be vital to
reform financial systems and develop sound money markets with a balance between direct
and indirect finance.
* Indirect finance—Promoting non-performing loan (NPL) settlement and establishing a
transparent and effective financial surveillance system
… it will be vital to promote NPL settlement in the banking sector and develop a
financial surveillance system …
Over the short-term, a strong and sound banking sector needs to be developed, which will
require urgent progress in settling accumulated bad debts. The East Asian countries struck
by the crisis have each set up institutions to promote the restructuring of corporate debt
and to inject public funds into banks to bolster their capital adequacy ratios, with
governments spearheading NPL settlement efforts (Fig. 1-3-21).
While it is hoped that policy frameworks for NPL settlement will have an early effect,
promoting full-scale debt settlement will require immediate attention to corporate
restructuring and reorganization, improving the repayment capacity of those in debt. It will
still be some time, however, before agreements on many companies’ restructuring plans
are put into effect, and financial institutions are still providing few new loans (Fig. 1-3-22).
Moreover, more than two years after the outbreak of the crisis, new NPLs continue to
emerge, with the NPL ratios of the East Asian countries not necessarily seeing a
substantial downturn (Appended Fig. 1-3-4).
Transparent systems for evaluating loss and clarifying accountability will be vital in
fundamentally resolving the NPL issue, prevention included. The East Asian nations will
have to push ahead harder with their current systemic reforms, which encompass
establishment of financial surveillance systems, development of bankruptcy and corporate
laws, and improvement of the transparency of corporate accounting and audits.
* Direct finance—Capital market development
Capital markets will also need to be improved through, for example, greater
information disclosure, strengthening direct finance.
In addition to developing a stronger and sounder indirect finance sector, enhancing the
functions of Asian financial systems will also mean improving capital markets. The healthy
development of stock and bond markets will expand both the width and depth of capital
procurement instruments and facilitate the construction of efficient financial functions.
The issuance and distribution markets in East Asia’s direct finance sector, futures and
options included, remain generally underdeveloped (Appended Fig. 1-3-5) and on too
limited a scale to allow the creation of appropriate reference indexes for long-term interest.
Fostering and expanding capital markets will require ensuring the wide-ranging
participation of domestic and foreign investors, to which end full information disclosure to
investors, improvement of rating agencies, and stronger surveillance systems will be vital.
Accounting standards are particularly valuable for investors in comparing company
information and evaluating appropriate risk, and are a key element of basic capital market
infrastructure. The World Bank (1999) has noted a positive correlation between accounting
standards and economic growth (Fig. 1-3-23), with appropriate accounting standards
essential to the sound development of financial systems.
(d) Legal systems
Predictable regulation formation and judicial systems, as well as asset stability and
elimination of corruption, contribute significantly to economic growth.
In a market economy, effectively functioning legal systems are extremely significant in
allowing companies to allocate resources efficiently, boost productivity, and sustain
management and technological innovation.
Based on a questionnaire survey of companies in 69 countries, the World Bank (1997)
divided countries into three groups according to the degree of credibility of their systemic
frameworks, including the predictability of regulation formation, subjective perceptions of
political instability, personal and asset safety, the predictability of execution of judicial law,
and corruption. The results indicated a strong positive correlation between a country’s level
of credibility and economic growth (Fig. 1-3-24).
The East Asian countries need to improve their legal systems in terms of corporate
and bankruptcy law …
In the course of overcoming the Asian crisis, the East Asian nations moved rapidly to
institute related laws and ordinances and bolster their economy-related systems. These
economic system reforms were wide-ranging, including corporate law, bankruptcy law
(Column 1-3-4) and competition law, and will serve as an important platform for the smooth
functioning of private sector economic activities3.
Column 1-3-4 Development of bankruptcy law in Thailand and Indonesia
Bankruptcy procedures in Indonesia and Thailand were previously said to require
enormous amounts of time and money, and in fact failed to perform. In line with their
agreements with the International Monetary Fund (IMF), however, both nations improved
their bankruptcy laws in order to speed up the settlement of burgeoning private debt. To
ensure the steady implementation and operation of the new laws, the next step will be to
build the capacity of judges and parties to bankruptcy.
Thailand
3
In developing the related systems, unjustified damage to corporate value through overly generous
treatment of minority stockholders should be avoided. Further, systems in themselves are inadequate in
providing for efficient management, with corporate governance also an important factor. See Fukukawa
(2000) for details.
Thailand’s original bankruptcy laws provided only for liquidation-type proceedings based on
petitions by creditors. April 1998 amendments introduced reorganization-type proceedings
to be launched by creditors, monitoring agencies and other parties. However, due to the
complexity of proceedings and the lack of systemic transparency, the IMF requested further
amendment, in response to which the Thai government battled with the Senate to pass 11
economic reform bills, which included bankruptcy laws, an exercise of right of mortgage law,
and laws on foreign corporations. The amendments brought in the following improvements.
(i) Strengthening of the right of avoidance
The right of avoidance is the right to annul actions taken by the insolvent party before the
adjudication of bankruptcy where such actions damage the creditor, and is intended to
protect the bankruptcy assets which will be apportioned out. Where the usual period of time
covered is three months, the new system extends this to a year for insiders, strengthening
protection of those bankruptcy assets which will be allocated as financial resources.
(ii) Establishment of the right of exclusion
The right of exclusion is the right of secured creditors to receive payment from the assets
provided as security with preference over general creditors. Formerly, even where credit
was loaned despite the knowledge that the debtor was carrying excessive debt, this was
regarded as general debt. Recognition of the right of exclusion has facilitated relief
financing for companies which are in management difficulties.
(iii) Adoption of a cram down system
The cram down system divides creditors into large secured creditors (holding at least 15
percent of total credit), other secured creditors, general creditors and deferred creditors,
approving restructuring plans where at least 75 percent of each group agrees and
agreement includes at least 50 percent of the total claim value. Formerly, the condition was
at least 75 percent of total claim value, with the amendments facilitating approval of
reorganization plans.
While the revised bankruptcy law instituted these improvements on the one hand, on the
other, the minimum claim eligible under the bankruptcy law was given a hefty boost for the
protection of small and medium enterprises (prior to the amendment, 50,000 baht for
natural persons and 500,000 baht for corporations; government bill 50,000 baht for natural
persons and one million baht for corporations; final amendment one million baht for natural
persons and two million baht for corporations). This however, has encouraged moral
hazard and the continued existence of inefficient companies, and could greatly hinder
progress with NPL settlement.
Indonesia
So as to be in time for the Consultative Group for Indonesia meeting, Indonesia pushed
through the introduction of its new bankruptcy law in a somewhat unconventional form,
passing it as a government regulation in April 1998 while the National Assembly was out
and receiving the Assembly’s approval after the fact.
The main improvements in the new law were the acceleration of the adjudication of
bankruptcy, the seizure of debtor assets during restructuring negotiations, the
establishment of special Commercial Courts dealing exclusively with bankruptcies,
obligatory establishment of a settlement deadline once a bankruptcy petition has been
made, and extension of the right of avoidance to one year.
According to a survey on the bankruptcy law conducted by JETRO Jakarta in April 1999
after the amended law had come into effect, Japanese companies want to see trials
executed and judgements made in line with the new law, as well as greater knowledge and
ability on the part of judges, fair trials, transparency, and elimination of political intervention
in the judicial system.
Rather than the bankruptcy law system itself, the problems lie in operation of the system,
and while Indonesia may have set in place a system, reform cannot end here, with steady
efforts needed to boost operational capacity and improve transparency.
As the East Asian nations work steadily on improvement of their legal systems, their next
challenge is to ensure the implementation of these new systems, and to steadily build the
necessary administrative capacity to do so.
In response to MITI’s Survey of Overseas Business Activities (December 1999), 44.9
percent of Japanese companies operating in Asia noted that improving legal systems and
ensuring policy transparency were key issues in achieving sustainable growth in the
economy in which they were based.
… and also institute mechanisms to ensure the implementation of these.
This was being impeded not by the absence of the necessary laws (7.2 percent of
respondents) but, many companies felt, by effectiveness in terms of operation (51.7
percent). Moreover, 35.7 percent of respondent companies viewed sudden changes in key
laws as an issue, with other problems including the lack of opportunities to make appeals
(8.2 percent) and trial system effectiveness (7.2 percent) (Fig. 1-3-25).
Administrative capacity is directly linked to whether or not a country can garner credibility in
the eyes of investing companies. Indexes relating to the degree of implementation of policy
decisions and policy transparency in East Asian countries based on a questionnaire survey
of corporate executives undertaken by the IMD in 1998 generally coincide in terms of
ascending order with the index on operational effectiveness of laws drawn from the above
MITI survey (Fig. 1-3-26).
The Letter of Intent exchanged between the IMF and Indonesia in January 2000 made
financing conditional on improvement of the governance capacity of the Indonesian
government through reform of the its systematic body of law, judicial system and policy
authorities. Clearly, international institutions too are beginning to stress administrative
capacity-building toward the appropriate implementation of economic, fiscal and monetary
policies.
Ensuring good governance will become increasingly important in realizing the sustainable
growth of the East Asian economy, and establishing fair legal systems and ensuring
operational transparency will be vital.
At the same time, cooperation on the part of developed countries and international
institutions too will be indispensable in tackling issues such as the above. Japan is
therefore pushing forward with a variety of efforts, providing, for example, legal system
assistance to countries such as Vietnam and Cambodia and holding seminars on economic
legal systems with Thailand, Indonesia and China. The World Bank and other international
institutions are also providing assistance to developing countries, while in the Asia-Pacific
Economic Cooperation forum too, members are unanimous as to the importance of legal
infrastructure development in the APEC region, and will undertake concrete measures to
that end.
Figure 1-3-9 Primary export dependency ratio
(1976→1986→1996)
（ＡＳＥＡＮ４）
(％)
100
High economic growth
Indonesia
Primary export value/total export value
90
80
70
60
Decreasing
dependence
50
40
Philippines
Thailand
30
20
Malaysia
10
0
0
1
2
3
4
5
6
7
8
9
(％)
Real GDP growth rate (average over last 10 years)
(％)
100
(Latin America, South Africa, Saudi Arabia）
90
Primary export value/total export value
10
Argentina
Saudi Arabia
Mexico
80
70
Brazil
60
50
40
Chile
South Africa
30
20
Black circles = 1976
White circles = 1996
10
0
0
2
4
6
8
Real GDP growth rate (average over last 10 years)
Sources: ITSY (UN);IFS (IMF)
10
12
(％)
Figure 1-3-10 ASEAN 4 gross fixed capital
（tril. $）
formation and inward direct investment
200
Inward direct
investment (graded
left)
160
120
Inward direct
investment/gross fixed
capital formation (graded
right)
Gross fixed capital
formation (graded
left)
（％）
10
8
6
80
4
40
2
0
0
95 （Y）
70
Source: IFS (IMF)
75
80
85
90
Appended Fig. 1-3-1
TFP estimates by country
World Bank
Kawai
Young
Collins & Bosworth
Sarel
(60-89)
(70-90)
(66-90)
(60-94)
(78-96)
Growth Comp. Growth Comp. Growth Comp. Growth
Comp. Growth Comp.
rate ratio rate ratio rate ratio
rate
ratio
rate ratio
4.3
63
5.1
73
3.1
62
8.8
62
Factor input
Capital
2.6
38
2.7
54
7.3
41
Thailand
Labor
2.4
35
0.4
8
1.5
21
ＴＦＰ
2.5
37
1.9
27
1.8
36
2.0
39
Factor input
5.2
83
5.1
76
2.8
74
7.4
56
Capital
3.1
46
2.3
61
6.9
47
Malaysia
Labor
2.0
30
0.5
13
0.6
9
ＴＦＰ
1.1
17
1.6
24
0.9
24
2.0
44
Factor input
3.9
76
4.7
75
2.6
76
9.9
75
Capital
2.6
42
2.1
62
9.0
62
Indonesia
Labor
2.1
34
0.5
15
0.9
13
ＴＦＰ
1.3
24
1.5
24
0.8
24
1.2
25
Factor input
4.3
120
1.7
131
2.4 1,274
Capital
2.4
68
1.2
92
1.8
947
Philippines
Labor
1.9
52
0.5
38
0.6
326
ＴＦＰ
▲0.7 ▲20
▲0.4
▲31 ▲0.8 ▲411
5.3
63
6.8
79
8.7
84
4.1
72
Factor input
Capital
5.1
60
4.4
42
3.3
58
Korea
Labor
1.7
20
4.4
42
0.8
14
ＴＦＰ
3.1
37
1.8
20
1.6
15
1.5
26
Factor input
5.0
57
3.9
46
7.2
75
3.7
64
Capital
1.9
23
3.6
37
3.1
53
Taiwan
Labor
2.0
24
3.6
38
0.6
10
ＴＦＰ
3.8
43
4.5
54
2.4
25
2.0
34
Factor input
4.6
56
5.0
68
Capital
3.0
41
Hong Kong
Labor
2.0
28
ＴＦＰ
3.6
44
2.3
32
Factor input
6.8
85
6.6
86
8.8
103
3.8
70
Capital
4.1
54
6.1
72
3.4
63
Singapore
Labor
2.5
32
2.7
32
0.4
7
ＴＦＰ
1.2
15
1.1
15 ▲0.3
▲4
1.5
28
Factor input
5.8
81
Capital
4.5
63
China
Labor
1.3
18
ＴＦＰ
1.9
27
Note: Because figures have been rounded off, breakdowns and totals are not always equivalent.
Sources: The East Asian Miracle: Economic Growth and Public Policy (World Bank, 1993, Oxford University
Press)、International Comparative Analysis of Economic Growth: Trade Liberalization and Productivity
?? Kawai, 1995), Trade Liberalization and Economic Development: Analysis of Productivity in Developing
Countries (Hidejiro Urata, IDE),　The Tyranny of Numbers: Confronting the Statistical Realities of the
East Asian Growth Experience (Alwyn Young, 1994, National Bureau of Economic Research, Inc.),
Economic Growth in East Asia: Accumulation versus Assimilation (Susan M. Collins & Barry P. Bosworth,
1996, Brookings Papers on Economic Activity 2, 1996, Brookings Institution), Growth and Productivity in
ASEAN Countries (Michael Sarel, 1997, IMF)
Figure 1-3-11 East Asian labor force growth rate
(％)
5
ROK
Hong Kong
Singapore
Thailand
Malaysia
Indonesia
Philippines
China
4
3
2
1
0
50-60
60-70
70-80
80-90
Source: Economically Active Population (ILO)
90-95
95-00
00-10
(Year)
(%)
5
Appended Fig. 1-3-2
East Asian population growth
Korea
Hong Kong
Singapore
Thailand
Malaysia
Indonesia
Philippines
China
4
3
2
1
0
▲1
50- 55- 60- 65- 70- 75- 80- 85- 90- 95- 00- 05- 10- 15- 20- 25- 30- 4055 60 65 70 75 80 85 90 95 00 05 10 15 20 25 30 40 50 (Y)
Note: Figures after 2000 are average estimates.
Source: World Population Prospects (UN)
Figure 1-3-12 Drop in savings rates in response to
population composition changes
(％)
10
5
ROK
Hong Kong
Singapore
Thailand
Malaysia
Indonesia
Philippines
China
0
▲5
▲10
▲15
90-2000
2000-10
2010-20
2020-30
2030-40
2040-50
(Y)
Note: Calculated by MITI International Trade Research Office.
Sources: The Sex and Age Distribution of the World's Population (UN); Future Global Capital
Shortages (OECD)
Figure 1-3-13
(％)
East Asian added value growth rates
（Machinery）
Added value growth rate per staff member
15
10
5
Philippines
(85-96,85-96)
Taiwan
(85-96,85-96)
Hong Kong
(85-96,85-95)
0
▲5
Malaysia
(85-97,85-96)
▲10
Singapore
▲15
▲20
Indonesia
(85-97,85-96)
▲25
▲30
▲15
(％)
Korea
(85-97,85,96)
▲10
Thailand
(85-91,86-91)
▲5
0
5
10
Added value growth rate
15
20
25
30
(％)
（Electrical and electronic machinery）
25
Added value growth rate per staff member
Hong Kong
(85-97,85-95)
20
Taiwan
(85-96,85-96)
15
Korea
(85-97,85-96)
Philippines
(85-96,85-96)
10
Singpore
5
0
▲5
Indonesia
(85-97,85-96)
▲10
Malaysia
(85-97,85-96)
Thailand
(85-91,86-91)
▲15
0
5
10
15
20
Added value growth rate
Note: Growth rate between 1985 and 1997 at 1990 prices. However,
figures in brackets indicate the years covered for firstly,
the added value growth rate, and secondly, the added growth
rate per staff member.
Source: Country Industrial Statistics (UNIDO)
25
(％)
Figure 1-3-14
8
ICOR trends
Korea
Hong Kong
Singapore
Thailand
Malaysia
Indonesia
Philippines
China
Japan
US
7
6
5
4
3
2
1
0
53-57
58-62
63-67
68-72
73-77
78-82
83-87
Note: ICOR = Gross fixed capital formation/nominal GDP increment
Source: IFS (IMF)
88-92
93-97 (Y)
Figure 1-3-15
Infrastructure and GNP
（1,000 km）
（Electricity）
China
y = 0.0859x + 5093.2
2
R = 0.8129
100
Japan
Thailand
Malaysia
Korea
Philippines
10
Indonesia
Hong Kong
Singpore
1
0
0
1
10
100
（GNP logarithm scale）
（Lines）
（Phone lines per 100 persons）
Hong Kong
1,000
10,000
（$1 billion）
US
60
Korea
50
Japan
40
Singapore
Malaysia
30
China
y = 0.0017x + 9.918
2
R = 0.7667
20
Thailand
Philippines
0
Indonesia
US
y = 0.6533x + 66790
2
R = 0.6329
China
Indonesia
1,000
Japan
Philippines
100
Korea
Thailand
10
Malaysia
Singapore
Hong Kong
1
0
1
10
100
（GNP logarithm scale）
1,000
10,000
（$1 billion）
（Telephones）
70
10
（Roads）
10,000
US
（Total road extension logarithm scale）
（Generation capacity logarithm scale）
（million kW）
1,000
10
20
（Per capita GNP）
30
40
（$1,000）
Note; 1995 data used.
Sources: Energy Statistics Yearbook,
Statistical Yearbook (UN),
World Bank Atlas (World Bank),
World Road Statistics
(World Road Federation)
Appended Fig. 1-3-3 East Asian electricity generation forecasts
Growth
1995
2020
rate
126GW 432GW 5.1％
East Asia
China
227GW 757GW 4.9％
Note: East Asia comprises Brunei, Indonesia, Malaysia
Myanmar, North Korea, Philippines, Singapore,
Korea, Taiwan, Thailand, Vietnam,　Afghanistan,
Bhutan, Fiji, French Polynesia, Kiribati, Maldives
New Caledonia, Papua New Guinea, Samoa,
Solomon Islands and Vanuatu. However, because
data on some regions was unavailable, this has been
excluded.
Source: World Energy Outlook 1998 (ＯＥＣＤ/ＩＥA,1998)
Figure 1-3-16 Private sector use in ASEAN 4
1991　Privatization of 3 public corporations, IPP introduction
Thailand 1992　Private sector participation opened in generation sector
1992　ＢＯＴ Law
Malaysia 1990　ＩＰＰ regulations
1
1985　Private sector participation opened
Indonesia 1992　Specific provisions on private sector participation
1998　Presidential directive on private participation
1987　Private sector participation opened in generation sector
Philippines
1990　ＢＯＴ Law
Thailand 7th Five Year Plan (1992-96) provides for 3 million BTO-laid phone lines
Malaysia 1990　Release of state-operated telecommunications company stock
1989　New electricity/telecoms act allows private participation together
with state-run companies
2
Indonesia 6th Five Year Plan (1994-99) provides for 5 million KSO-laid phone lines
1994　Release of state-operated dom. telecommunications company stock
1995　Release of state-operated intl. telecommunications company stock
Private enterprises supply services from outset
Philippines
1993　Intl./mobile phone licences granted to newcomers
Note: 1 = electricity, 2 = telecommunications
Figure 1-3-17
（％）
Education and human resource indices in East Asia
Junior high
attendance rate
Elementary
attendance rate
High school
attendance rate
Skilled workers
(graded right)
Qualified technicians
(graded right)
100
10
90
9
80
8
70
7
60
6
50
5
40
4
30
3
20
2
10
1
0
ROK　Hong Kong　Singapore　Thailand　Malaysia　Indonesia Philippines　China
韓国
香港
シンガポール
タイ
マレイシア
インドネシア
フィリピン
中国
0
Note: The greater the index, the easier to employ skilled workers, and the more qualified technicians there are
in the labor market. Attendance rates are for 1995, skilled worker and qualified technician figures for 1998.
Sources: World Development Indicators (World Bank); The World Competitiveness Yearbook (IMD)
（％）
100
Figure 1-3-18 Local staff employment and training policies of
Japanese affiliates
90
80
Employment for immediate use
70
60
50
40
30
Fostering through OJT, seminars, etc.
20
10
0
Manufacturing Manufacturing
(general)
(technical)
Clerical
R&D
Source: Survey of Japanese Companies Abroad (MITI)
Materials
procurement
M/ment and
planning
Sales
（％）
Figure 1-3-19 East Asian R&D spending against GDP
(1996)
3.0
2.5
2.0
1.5
1.0
0.5
0.0
ROK
Taiwan
Sing.
China
Malaysia
HK
Phil.
Reference: IMD, The World Competitiveness Yearbook
Thailand
Indonesia
Ref.
Japan
US
Figure 1-3-20
Hong Kong
affiliates
Japanese
affiliates
South China electronic parts and assembly cluster development process
Early 80s
Late 80s
Early 90s
Mid 90s
Hong Kong textiles,
miscellaneous
goods into China
Late 90s
Followed by electronic parts
home electrics
Followed by Japanese
precision machinery、
Japanese
texiles,
misc. goods
into China
home electrics, OA
High degree of
location of copiers,
printers
Becomes world parts
procurement base through
Hong Kong IPOs
Jap. electronic parts, plastic
processing, metal processing, etc.
Taiwanese
affiliates
Taiwan lifts ban on
ban on mainland
PC parts, metal processing、
plastic processing
investment, starts
PC assembly
US PC OEM
companies
with footwear(1987)
US and ROK
affiliates
Chinese
affiliates
US PCs and telecoms.
ROK follows.PRC becomes world
procurement base
Township and village
enterprises launched
National home
electrics grow
Forces promoting establishment
and development
Source: Developed by JETRO Hong Kong and Japan Machinery Export Association
Local parts industries
grow.
National telecoms
equipment grows.
Private companies enter
Flow of parts supply
PRC becomes world PC
manufacturing base
National PCs grow.
Private companies enter
Figure 1-3-21
East Asian responses to bad debt settlement
ROK
Thailand
KAMCO restructured Asset Management
Purchase of bad debt in Nov. 1997
Company (AMC)
rights
Malaysia
Danaharta
established June
1998
Government (govt. Financial
Capital injections bond issues)
Institutions
Development Fund
Financial
Corporate Debt
Promotion of debt Monitoring
Restructuring
restructuring
Committee
Advisory Committee
(CDRAC)
Source: MITI research
Danamodal est.
August 1998
Indonesia
Indonesian Bank
Reconstruction
Agency established
Jan. 1998
Government (govt.
bond issues)
Corporate Debt
Indonesian National
Restructuring
Debt Restructuring
Committee est. July Agency (INDRA) est.
1998
August 1998
Figure 1-3-22
（％）
40
Growth rate of bank lending and money supply
Korea
（％）
35
Thailand
35
30
Lending value
30
25
Money supply
20
25
15
20
10
15
5
10
0
5
▲5
0
▲10
92 93 94 95 96 97 98
（％）
35
Ⅰ Ⅱ Ⅲ Ⅳ Ⅰ Ⅱ Ⅲ Ⅳ Ⅰ Ⅱ Ⅲ (Q)
97
98
99
(Y)
Malaysia
92 93 94 95 96 97 98
（％）
120
Ⅰ Ⅱ Ⅲ Ⅳ Ⅰ Ⅱ Ⅲ Ⅳ Ⅰ Ⅱ Ⅲ (Q)
(Y)
97
98
99
Indonesia
100
30
80
25
60
20
40
15
20
10
0
▲20
5
▲40
0
▲60
▲5
▲80
92 93 94 95 96 97 98
Ⅰ Ⅱ Ⅲ Ⅳ Ⅰ Ⅱ Ⅲ Ⅳ Ⅰ Ⅱ Ⅲ (Q)
97
98
99
(Y)
92 93 94 95 96 97 98
Ⅰ Ⅱ Ⅲ Ⅳ Ⅰ Ⅱ Ⅲ Ⅳ Ⅰ Ⅱ Ⅲ (Q)
97
98
99
(Y)
Note: Quarterly data is as compared to the same quarter the previous year.
Source: IFS (IMF)
Appended Fig. 1-3-4
Korea (6)
Korea (3)
Thailand
Malaysia (6)
Malaysia (3)
Indonesia
1996
Dec.
3.9
3.7
Trends in NPL ratios
1997
Dec.
5.8
4.1
March
7.3
7.0
9.3(March) 19.8
1998
June Sept.
8.6
7.1
31.0 37.9
8.9
8.1
12.8
(Unit:%)
Dec.
March
7.4
42.9
7.5
13.4
8.7
46.2
7.9
13.0
58.7
1999
June Sept.
8.7
46.5
7.9
12.4
43.6
7.7
12.0
Dec.
38.2
Note: Korea (6) refers to a 6-month standard, (3) a 3-month standard. Thai commercial banks work to a 3-month standard.
Malaysia (6) refers to a 6-month standard, (3) a 3-month standard. Indonesian commercial banks operate on a 3-month standard.
Sources: ROK Financial Surveillance Committee, Bank of Thailand, Bank Negara Malaysia, Bank of Indonesia
Appended Fig. 1-3-5
Financial and stock markets
Traditionally, a high ratio of indirect rather than direct finance. Due to heavy investment demand and the
Overall
permanent lack of domestic savings, the government guided the establishment of a financial system, with tight
characteristics
K
government control and supervision tight.
o
Strong tendency for owner-operated enterprises to avoid lower holding ratios, while the bulk of increased
r
Stock market capital is alloted to stockholders. Public issues are rare except for initial public offerings, and allocation of
e
shares to third parties often targets employees.
a
The aims of a balanced budget and small government have limited the scale of the government bond market.
Bond market The maturity period for most corporate bonds is up to three years, not fulfilling the original purpose of such
bonds, which is to provide long-term financing, and the scale of the distribution market is also too limited.
Most lending is short-term, with longer-term lending handled primarily through roll-backs based on long-term
T
Overall
commitment. Long-term fixed interest lending is rare except for industrial finance public corporations and
h characteristics
some insurance companies and foreign banks.
a
Established under the 1974 Securities and Exchange Law, with the Thai Stock Exchange opening in 1975.
i
Stock market Strong economic expansion since 1986 has been accompanied by stock market expansion. Foreign investors
l
account for 34.3% of market value （end of 1997）.
a
Slow to develop due to immature governmetn bond market. Commercial banks, the main investors, tend to
n
Bond market engage in cornering-type investment, with distribution extremely limited. A more liquid distribution market
d
needs to be created which allows the formation of long-term barometer interest rates.
M
Overall
Indirect finance, particularly commercial banks, account for the bulk of the financial system.
a
characteristics
l
One of the top East Asian stock markets, attracting many different types of investors. Developed rapidly in
a
Stock market
the 1990s with strong economic growth, but the aggregate value of listed stocks plunged after the crisis.
y
Developed by government in the 1970s primarily around massive issues of govt. bonds to bring in the
s
Bond market necessary funds for development plans. Govt. bonds and other bonds are generally entirely underwritten by
i
govt. financial institutions and banks and held until maturity, resulting in a stagnant distribution market.
a
n
Permanent lack of capital, with both public and private sectors depending on foreign direct investment and
Overall
d
loans. Capital markets and long-term finance are still under-developed, with corporate capital procurement
characteristics
o
mostly in the form of short-term finance.
n
Listing standards raised in 1992 and new listing regulations formed, including introduction of a delisting system,
Stock market
e
to create a sounder market, but scale remains limited.
s
Launched in 1983, but up until 1987, bond issues restricted to three companies (Indonesian HIghway
Bond market
i
Corporation, etc.), with govt. bonds issued for the first time to raise funds for the Indonesian Bank
h
Because capital procurement from the capital market is limited to a very few large companies, other
Overall
i
companies still depend on indirect finance. Credit standards are tight, with long-term financing provided in the
characteristics
l
form of short-term roll-overs on the grounds of inadequate collateral.
i
Because of strong interest in keeping control within the family and equally strong resistance to information
p
Stock market disclosure, companies were slow to go public, but with the distribution market expanding, fund procurement
p
from the stock market is slowly increasing.
i
Due to the permanent budget deficit and the need to procure funds domestically as a result of the 1983 debt
n
Bond market crisis, the government boosted its bond issues. However, because of high issuance costs, complicated
e
procedures and the need for stockholder approval, few companies issue corporate bonds.
Source: Created by the International Trade Research Office, MITI, from Changing World Finance and Capital Markets (?International
Figure 1-3-23
Accounting standards and per capita GNP (1990)
90
80
(Accounting standards)
70
60
50
■　UK-based systems
▲　German-based systems
×　French-based systems
＋　Scandinavian-based systems
40
30
20
0
5,000
10,000
15,000
20,000
25,000
(Per capita GNP)
Note: The closer the standard to 90, the more rigorous.
Sources: World Development Report 1998/99; World Tables (World Bank)
30,000
35,000
（US$）
Figure 1-3-24
Legal system credibility and per capita GNP
（％） 2.0
(Per income GNP growth rate)
1.5
1.0
0.5
0.0
▲0.5
▲1.0
▲1.5
High
Medium
(Credibility level)
Source: World Development Report (World Bank)
Low
（％）
60
Figure 1-3-25 Impediments and problems rising from under-developed
legal systems and lack of policy transparency
50
40
30
20
10
0
Effective
legal
operation
Sudden changes in
important laws
No chance
to object
Effectiveness of
trial system
Necessary laws
not passed
Source: Survey of Trends in Business Activities of Foreign Affiliates (MITI)
Other
Figure 1-3-26
East Asian administrative capacity indices
Effectiveness of legal
operation
（MITI）
Singapore
Malaysia
Hong Kong
Philippines
Taiwan
Thailand
ROK
Indonesia
9.37
6.27
5.71
4.29
4.07
2.73
2.35
1.67
Degree of implementation
of govt. decisions
(IMD)
Policy
transparency
(IMD)
8.32
5.48
6.47
4.29
4.28
3.53
3.29
3.78
Sources: Survey of Trends in Business Activities of Foreign Affiliates (MITI); The World
Competitiveness Handbook (IMD)
7.56
6.65
5.79
5.33
4.99
4.38
3.24
4.27