Asia-Pacific economic outlook for 2009 (Part 2)

The economic crisis currently has the world holding its collective breath. Many countries have already entered into recession and others watch fearfully as their growth forecasts fall. This is the case of Chile, which has witnessed its main trade partners reduce their purchases of Chilean imports. The Asian countries are no exception; especially the three giants of the region: Japan, China and India.

Japan was the first Asian country directly affected by the subprime crisis. Several of its banks had losses beginning in 2007. Then, its stock market was impacted in 2008. Its exports have dropped, not unlike other countries in the region. The Japanese automotive and technology sectors have been the hardest hit. Kawasaki, in fact, had to give up participating in the GP circuit due to the motorcycle icon’s financial difficulties. Panasaonic has been closing some of its plants abroad and has also halted investment plans.

For economist José Díaz, "Japan could have a different response, and enter into recession, but they have quite a unique history and low growth rates are not a new issue." He refers to the fact that, after decades of two-digit growth, Japan has been riding its economic brakes almost non-stop since the 1990s. It has experienced negative growth or an average of 1%. This is exactly in accord with its plan to maintain the current system, which focuses on avoiding imbalances.

The president of Chile’s leading steel concern, Roberto de Andraca, is well-known for his acumen on the Japanese market and especially steel. The head of Compañía de Acero del Pacífico (CAP) reflected on a recent visit to Japan. “All medium-term planning is on stand by for now… Firms are waiting to see what happens next. It’s a lot like cooking soup. You see the pot nearly boil and you lower the flame. Then you wait to see what happens… (In fact) we are all on hold."

China: the Asian giant

China's largest customer is the United States. Consequently, demand for Chinese goods has dropped of late. This is in addition to a reduction in foreign investment by international firms operating in China’s heavily industrialized coastal areas. In Beijing’s opinion, the only way out of this scenario involves increasing domestic demand.

The plan, which will inject $586 billion into the Chinese economy, is primarily aimed at financing new infrastructure and increasing domestic demand. It includes railway, nuclear plant, port and airport construction projects, among others.

China has a total of 300 million people in a higher income bracket, comprised of the new middle class and wealthy, who live in the industrial and business centers along the coastline. The problem is that the rest of the population, especially rural, has failed to participate in the country’s development. This measure, therefore, is aimed encouraging consumption within this lower income group.

Mr. de Andraca, CAP’s president, is categorical on this topic. "As far as Chile is concerned, we welcome any measure to boost and stabilize China’s economy which involves an increase in raw materials purchases. This is due to the fact that China will most probably continue to purchase commodities during the completion of (such large-scale) infrastructure projects."

India’s surprising stability

India is a case apart in Asia, according to Universidad de Chile professor Sergio Carrasco. “(This nation’s) domestic market is more developed. India has undergone a lot of training for how to survive in a closed economy, given its relatively recent economic aperture. It also has very few globalized sectors within its economy." The economic opening of India only recently took place in the 1990s, when it decided to reform its social system and open its markets to foreign investment. This process has not been fully completed, either.

India’s government is still concerned about India’s continuing modernization. Despite the crisis, India has not stopped its development initiatives which were already in process. With nearly 600 million people already integrated into its domestic market, India now needs reform in its financial sector. Its banking system thankfully seems to have avoided the subprime market altogether. But according to Carrasco, "India’s banking system needs to reinvent itself. It also needs to modernize its regulatory framework and increase its technological efficiency." According to Professor Carrasco, this is an ideal moment to implement reform, given need for all Indians to have access to loans, credit cards and other mechanisms which help sustain demand.

Although India’s nascent technology sector may be experiencing a period of uncertainty, Carrasco believes that, “growth projections where investment is concerned, have tended to decline, but business activity will remain unchanged. This is because India provides the developed world with call centers. Though this demand will undoubtedly drop, they won’t close up shop either. And they will be right back to their previous levels once the world’s economic system is 100% again.”