ASIA-JAPAN: Investors Take Wait-and-See Stance

By Suvendrini Kakuchi Reprint | | Print |

Suvendrini Kakuchi

TOKYO, Oct 28 1997 (IPS) - Southeast Asia’s economic woes sparked by a serious currency crisis that has shaken even Australia, is causing Japan to cool its interest in the region — at least temporarily.

“The Japanese were galloping into Southeast Asia like wild horses for the past two decades. But now they are thinking twice, a phenomenon that will temper economic relations for two to three years,” said Akefumi Kuchiki, an economist at the Institute of Developing Economies, a quasi-governmental think-tank.

Japan is South-east Asia’s biggest investor. But major concerns have caused Japanese companies to apply the brakes on the seemingly unending wave of investment that flowed to its prospering neighbors.

The collapse of the economic bubble in Thailand, the second biggest recipient of Japanese investment, and the overall sluggish growth pattern in the region have dampened enthusiasm.

“There is a loss of confidence among Japanese businessmen which will translate to lower investment and a general wait-and-see approach that is really not the best thing for Southeast Asia’s economic recovery,” explains Masato Kawamori, a specialist on the Thai economy.

Thailand was the fourth largest recipient of Japanese direct investment in Asia in the first quarter in 1997. It received about 8.7 billion dollars or 12 percent of total investment, and ranked behind China, Indonesia and Hong Kong.

But Thailand’s external private debt has dealt a major blow to Japanese banks that till recently competed against one another in Thailand. Out of its total borrowings of 70 billion dollars, 37.5 billion was sourced from Japanese banks.

Because of the de facto devaluation of the Thai baht, Japanese investors have to pay higher prices for imports as well as take losses in investments in real estate..

NEC Corp, a major electronics manufacturer producing telephone and facsimile machines in Thailand estimated an immediate drop in incomes as a result of an increase in prices of parts shipped into Thailand for manufacture.

Before the currency crisis, the relatively stable exchange rate in Thailand was one of the factors that attracted Japanese companies. Now, Japanese firms such as NEC are forced to increase prices of their manufactured goods in the local market in order to reduce their losses.

Analysts point out that Southeast Asia’s economic growth in the eighties and early nineties made the region a viable market for Japanese goods.

“Japanese companies increased their investment in the ASEAN because they saw the region as an important market . There is a marked difference not just a cheap base for exports to other countries which was the situation in the eighties,” says Kuchiki.

But that attraction has diminished. Consumer demand has slowed in Thailand as consumers struggle with inflation, rising interest rates and austerity measures.

Car sales in Thailand fell 14.5 percent between January and June this year and car makers expect the situation to worsen. Nissan Motor Company, for instance, said the situation has forced it to close one of its plants in August and reduce its production of passenger cars in another to one-fourth of its usual level.

Asian Honda Motor Co, an affiliate of Honda Motor Company in Thailand, says it has lowered its expectations for Thailand this year after its six-month sales fell 30 percent from its previous level.

Such trend, analyst say, has dealt a severe blow to the emerging image of Southeast Asia maturing from a cheap production base to become a reliable market in its own right for Japanese companies.

“The current conditions in Southeast Asia have disappointed Japanese businesses which expected the area to become an expanding market,” writes Michio Sato of Yomuiri Shimbun.

Through investments in the region, Japan hopes to strengthen its ties with Southeast Asia, which has traditionally been dependent on the United States.

Asia accounts for only 4.0 percent of the overall earnings of Japanese companies, mainly in the automobile and electrical machinery sector. But according to Gold Sachs, an American investment bank, these sectors hoped to source a big part of their income growth from the region.

Despite the small figure, Japanese businessmen note that more than 70 percent of the products of their companies in Asia are now sold within the region.

This is the reason why despite drooping enthusiasm, Japanese companies will not turn away from Southeast Asia in the long run, analysts say.

More than 100 billion dollars in direct Japanese investment is threatened by the current crisis.

Japan is taking a lead role in an International Monetary Fund rescue package to Thailand, with the Export-Import Bank contributing 4.0 billion dollars of the 17.2 billion bailout package.

“Japanese companies are too deeply entrenched in the Asian economy to pull out. This explains why the Japanese government is spearheading a bailout program for the ailing economies,” explains Kuchiki.