For East Asia, Crisis Prompts a Rethinking of Dependence on Exports
For East Asia, Crisis Prompts a Rethinking of Dependence on Exports
SINGAPORE: As trade withers around the world and freighters sit empty, some of the most vulnerable economies are proving to be small, international crossroads like Singapore, Hong Kong and Taiwan - and that is prompting a rethinking of their economic development strategies.
Half a century of swiftly growing exports, accompanied by an expansion into international services like finance, has transformed all three locales into global trading centers. But that progress has been thrown into reverse with some of the world's steepest plunges in economic activity.
In Singapore, where manufacturing still dwarfs finance in employment and the share of economic output, tens of thousands of factory workers have been cut back to working three or four days a week and their hourly wages have been reduced.
In Taiwan, the crucial electronics sector has put nearly 200,000 workers on long-term unpaid vacations as exports have plummeted by more than half.
In Hong Kong, a desperate woman who had lost her job threatened suicide while speaking to the territory's chief executive, Donald Tsang, during a call-in radio show last week.
In all three areas, the ever-rising wave of global economic troubles is known as the "financial tsunami." But it is the collapse of exports, not financial markets, that is prompting questions about how to limit their vulnerability in the future.
"The financial tsunami makes it possible to rethink our economic development strategy, as to whether we should rely so much on exports," President Ma Ying-jeou of Taiwan said during an interview in Taipei. "When the times were good, everyone praised us. Now times are bad, we think we should attach more emphasis on domestic demand instead of putting all our eggs in one basket."
Exporters in East Asia are suffering particular harm now because retailers and other importers in the West have not only cut back their orders to match falling sales: The importers have gone much farther, often halting orders so as to draw down inventories to levels consistent with a weak economy.
"Why is it the consumption only slows down 2 or 3 percent and our exports slow down 40 percent?" said York Liao, the secretary general of the Council for Economic Planning and Development in Taiwan. The answer, he added, is a temporary drawing down in inventories by overseas buyers, plus East Asian reliance on exports of discretionary products like flat-panel televisions, for which sales have fallen especially quickly.
Small internationalized economies elsewhere have also run into difficulty. A real estate and financial bubble has burst in Dubai; Caribbean nations are struggling with slumps in tourism; and Antigua, also in the Caribbean, has seen the collapse of the business empire run by its largest investor, Robert Allen Stanford.
The standard policy prescription for most countries in the current downturn is to build up domestic demand and reduce their dependence on exports for growth. But that may not be so easy.
Stimulating consumption has long been difficult in East Asia, and seldom more so than when citizens are especially wary of borrowing and worry about losing their jobs. Taiwan, Hong Kong and Singapore have the added problem of aging populations with very strong traditions of saving a lot and consuming little.
In the face of sharp slowdowns, large, developed economies typically spend heavily on government stimulus programs, as the United States and Japan are trying to do. Taiwan, Hong Kong and Singapore are trying some forms of stimulus, but for them, extra spending on roads and subways can easily translate into more imports of steel and other materials.
"You can't classically apply a stimulus to demand here without a lot of it leaking out," said Koh Boon Hwee, the chairman of DBS Bank in Singapore.
In addition, their dependence on trade and opposition to protectionism makes them reluctant to impose any version of the "Buy American" provision in the United States stimulus plan to keep more of the spending at home.
Singapore, where the population is 4.6 million people, compared with Taiwan's 23 million, is particularly vulnerable to a decline in trade.
It typically imports raw materials, does some processing - like producing chemicals and electronic components - and then exports the goods. So the total dollar value of its exports and imports is far larger than its gross domestic product - about three and a half times as much.
With so much of its output dependent on trade handled by multinationals with long-term investments here, Singapore is struggling.
With multinationals like General Electric running into difficulty, Singapore is shifting its strategy to luring more but smaller investments from midsize companies abroad. It has also accelerated the construction of a government-financed town of research laboratories, offices and apartments for the biomedical, materials sciences and new media industries, after putting the brakes on construction a year ago because of high prices for steel and cement.
But in the short term, "there's no hope for us if the global economy goes down," said Philip Yeo, the special adviser to the prime minister for economic development.
Taiwan, where for years the government encouraged information technology companies with tax breaks, inexpensive land, loans and more, is probably the most endangered of the small Asian economies.
The result of that government largesse is an economy extremely dependent on a single industrial sector that has been devastated by plunging sales of electronics worldwide.
"Half of the industries just got a bad cold," said Preston Chen, a chemicals industry magnate who is the chairman of the Chinese National Federation of Industries in Taiwan. "They probably can recover quickly. The other 50 percent - they've got, not cancer, but close."
Small economies are trying in different ways to snuggle up to China, the last economy in East Asia that combines a large domestic market and a faint glow of growth.
Taiwan is in the earliest stages of negotiating a free-trade pact with the mainland, while Singapore signed one Oct. 23 and Hong Kong has signed a series of six increasingly broad trade agreements with the mainland since 2003.
Hong Kong, with seven million people, "is a very small market by any standard, but we see there is even greater potential in this mainland market," said Rita Lau, Hong Kong's secretary of commerce and economic development.
But few in the region now want to see further expansion of the role of exports in their economies.
"The tsunami won't last forever, so we will still attach a lot of importance to exports," said President Ma of Taiwan. "But perhaps the percentage won't be that large."