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UNDERSTANDING THE MACROECONOMIC
BUSINESS ENVIRONMENT Of EAST AND
SOUTHEAST ASIA
A Reader
H.C. Blomqvist
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Definitions of terms
East and Southeast Asia comprises the region roughly situated south of Russian
Siberia and East of India. See Figure 1.
Figure 1. Map of East and Southeast Asia
Note that the terminology is not always clear. Sometimes the whole region is referred
to as East Asia especially in economic contexts. Sometimes China + Korea +
Japan are called Northeast Asia, sometimes East Asia. Moreover the following
labels are often used:
Far East, meaning roughly the same as East and Southeast Asia
Asia-Pacific: East and Southeast Asia + Australia and Pacific island states
Pacific Rim: All countries bordering to the Pacific Ocean (includes the
American side).
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In this reader, we use Asia for short when referring to East and Southeast Asia.
ASEAN is the Association of Southeast Asian Nations, the most important vehicle
for co-operation and integration in Asia. All Southeast Asia countries are members.
ASEAN + 3: A loose co-operation structure between ASEAN and China, Korea and
Japan; aims at establishing a free trade area (and maybe more) in the long term.
NICs or NIEs: Newly Industrialised Countries (Economies); refers traditionally to
Hong Kong, Korea, Singapore and Taiwan (but de facto todayseveral other countries
could also be included).
The importance of Asia in the world economy
Asia as a whole (including India etc.) accounted for 60 percent of the global
production as late as 1820. The share reached its lowest level after World War II with
18.5 percent in 1950 and was 37 percent in 1998 (Bigsten 2002). East and Southeast
Asia accounted for 31 percent of the worlds population and 00 percent of its exports
in 2000. Foreign Direct Investment1 inflows to Asia (excluding Japan) has been
dominating among developing countries 2 and comprised 60 percent in 2002. See
Table 1.
Table 1. FDI inflows to Asia, USD billion
2001 2002
Source: United Nations (2003): World Investment Report. N.Y. and Geneva.
East and Southeast Asia, excluding Japan, absorbed 21 percent of global inwardFDI
on average 1991-96. (Japan took only 0.3%.). In 2002, East and Southeast Asia
received 13 percent, excluding Japan, while Japan received 1.4%. As to outward
flows, Asia (exclusive of Japan) accounted for 5 percent in 2002 and Japan foranother 5 percent. Between 1991 and 1996, on average, the figures were 11 percent,
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excluding Japan, while Japan alone accounted for 7.5 percent. Note that the figures
may differ rather drastically from year to year.
The direction of the FDI flows has changed over the years: In the 1980s and 1990s,
Southeast Asia was the major recipient, while recently (after the Asian crisis 1997-98)
China has become the leading recipient. Note that inwards FDI to Japan was very
small until recently. However, during the last few years Japan has received increasing
volumes of FDI, partly as a result of deliberate policy.
In the global economy, Asia interacts mainly with North America and Europe (the so-
called triad), while the rest of the world is more or less marginalised. Note also that
the economic relations between Asia and North America are much closer and more
developed than those between Asia and Europe. See Figure 2.
Figure 2. The triad
NorthAmerica
Europe
East Asia
Some basic economic facts
A characteristic trait for the region is its heterogeneity:
N.B. the size of the Japanese economy: Japan alone accounts for 65 percent of
the regions production (but only 29 percent of its exports). Note that these
figures used to be much higher. Chinas share of production is about 15
percent and its share of exports is 15 percent, too.
Some of the worlds richest countries and territories are in Asia (Japan, Hong
Kong, Singapore) but also some of the poorest (Myanmar, Laos, Cambodia).
Endowments of resources are very diverse. Some are rich in natural resources(many Southeast Asian countries), some have abundant low-skilled labour
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(China, Indonesia, Philippines), some are very capital-abundant (e.g.
Singapore), etc.
Economic and political systems are very diverse. Some (like China, Vietnam
and Laos) are still one-party (nominally) socialist economies, some veryliberal market economies (such as Hong Kong).
Some are very large (China) and some very small (Singapore, Brunei).
Diversity seems to provide scope for a beneficial division of labourin the region. The
Asian development has been development ofinterdependent economies. Much of the
trade and FDI flows are intra-regional. This reduces the dependence of the region on
trade cycles in other parts of the world. On the other hand, trouble in one major
economy spreads easily to the rest of the region, as shown by the Asian crisis in the
late 1990s.
There are also common traits, however, with occasional exceptions:
High growth rates on average over the long term
High rates of savings and investment
Emphasis on education and health care
Structural change
Economic development is regular accompanied by a restructuring of the economy.
The share of the primary sector (agriculture etc.) decreases while that of industry
increases. Finally, the service sector tends to take over as the dominant sector. For
Asia, see Table 3.
Income distribution
East and Southeast Asia are known for growth with equality, i.e., the income
distribution has usually not deteriorated despite high rates of growth. Note that the
income distribution may be crucial for the sustainability of growth; only a reasonably
even distribution makes mass markets for goods and services possible. Note also that
distribution factors may be important for foreign investors how to plan their
investment and marketing strategies! See Table 4.
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Table 3. Sectoraldistribution of GDP, %
Country Agriculture Industry Services
1970 2001 1970 2001 1970 2001China 42 11 45 66 13 24Indonesia 35 16 28 36 37 48Philippines 28 20 34 34 38 46Thailand 30 8 26 44 44 48Malaysia n.a. 23 n.a. 43 n.a. 49Korea 30 5 24 44 46 51Hong Kong n.a. 0 n.a. 14 n.. 86Singapore 2 0 36 31 61 69Japan n.a. 2 n.a. 37 n.a. 61
Source: Dowling & Valenzuela, World Bank.
Table 4. Income distribution, 2000
Income share ofbottom 20%
Income shareof top 20%
Top 20%/Bottom 20 %
Share of pop.With less than
1$/day
China 5.9 46.6 8.0 22Indonesia 9.0 41.1 4.6 8
Malaysia 4.4 54.3 12.4 4Philippines 5.4 52.3 9.8 27Thailand 6.4 48.4 7.6 2Vietnam 8.0 44.5 5.6 n.a.FINLAND 10.0 35.8 3.6 n.a.
Source: Kokko 2003.
Health status
Health is another indicator of development; see Table 3. Health status is closely, but
not perfectly, correlated with national income per capita.
Education and technology
Table 5 shows some indicators of the level of education and technology, both
regarded as paramount for successful economic development.
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Table 3. Helth indicators
Life
expectancy2000
Underweight
children
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