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Japan Dominates Region's Economy, But China Is Awake

Asia is the world's most economically dynamic region. Countries are hungry for foreign investment, and big players like Japan and the US are racing to provide it. An economic powerhouse is emerging from cooperation among China, Hong Kong, and Taiwan. Today the Monitor continues a series on the competition for regional power.

FROM his skyscraper office in Singapore, Mikio Nomura of Toyota Motor Corporation directs one of Japan's new little empires in Asia.

As he describes it, he is in charge of ``piecing markets together, country by country'' in Southeast Asia for the world's third largest automaker.

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In a division-of-labor scheme, Toyota makes vehicle parts in Thailand, Malaysia, Indonesia, and the Philippines, then assembles vehicles in each country, selling about one-fifth of Toyota's total overseas production and earning one-fifth of the market in those countries.

Toyota's strategy of tying together different markets has produced the kind of penetration of Asia that has helped many big Japanese firms to dominate the world's most economically dynamic region. Another reason, says Mr. Nomura, is that ``we've been here longer. This is our backyard.''

Japan's trade and investment boom of the 1980s is one reason why intra-Asian trade now exceeds Asia's trade with the rest of the world. Japan also helped build up trade across the Pacific to the point where it began to exceed trade across the Atlantic in 1983.

But Japan's shadow over Asia is relatively new, and vulnerable to two big opponents: a Chinese economy growing more than 10 percent a year and a United States showing new aggressiveness under President Clinton to expand exports to Asia, even as the US remains the largest import market for many Asian nations.

For now, Japan provides the ``core'' economy for much of Asia. Malaysia, for instance, has become the world's biggest exporter of air conditioners, all made in Japanese factories. The car market in Thailand is 90 percent Japanese.

In China, too, Japan has led an investment wave in big projects. The Japanese-owned Yaohan retailing company, for instance, plans to open 1,000 supermarkets across China by the year 2010.

Japanese dominance in Asia has been helped along by bureaucrats in Japan's Ministry of International Trade and Industry (MITI), which readily gives advice to Asian nations on how to shape their economies. Thailand's Chulalongkorn University, for instance, is tripling its engineering faculty to produce thousands more engineers, mainly for the dozens of Japanese factories around Bangkok.

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MITI officials often speak of Japan's role in Asia as the lead goose in a flying-V formation, guiding other nations in forming a cohesive regional economy - with Japan always in front.

For 17 Asian nations, Japan is the largest aid donor. Last year, Tokyo put 65 percent of its $11.15 billion in foreign aid into Asia, with about one-fifth of it tied to benefit Japanese companies.

Asia's rapid growth of 6-7 percent a year and its low wages are the main attraction for Japan. Firms can get about a 5 percent return on sales in Asia, far more than in Europe or the US, according to MITI, although volumes are still low.

In 1991, Japan made $4 billion in profits in Asia compared to a loss of $1.5 billion in the Americas and Europe. And last year, Japanese investment dropped 25 percent in North America but rose by 4 percent in Southeast Asia, and jumped 260 percent in China.

``The competition in Asia for the 1990s is economic, not military strength,'' says Zakaria Haji Ahmad, a University of Malaya security expert. Communism's decline has opened up large new markets in China, Vietnam, Cambodia, Laos, and to some extent, Burma and even North Korea. India, too, has begun to release its economy from a socialist straitjacket. Half the planet is now hungry for foreign investment, and Japan is the richest capitalist around.

``Japan has already won the markets here. They got a head start and are about two to three steps ahead of the US,'' Dr. Ahmad says.

But do Asians welcome Japan's economic advance? And will China ever rise up as a regional competitor?

While many Asian nations welcome Japanese investment, they do so reluctantly, instead wishing for Western investment because it usually comes with fewer strings attached. Vietnam, for instance, is trying to avoid giving Japan a head start in its new market economy, especially after Mitsubishi Motor Co. recently tried to sway Hanoi into building a Japanese-oriented car-assembly industry.

``Japan has taken Western technology and figured out how to produce it better and cheaper, and to do it in Asian countries,'' says J. Malcolm Dowling, an economist with the Asian Development Bank in Manila. ``But the Japanese don't want Southeast Asia and China to do the same thing. They want them tied to Japanese technology.''

``It's like the prey of the black widow spider,'' he adds, ``by the time you realize you're in the web, it's too late.''

South Korea, because of Japan's colonial occupation of the peninsula from 1910 to 1945, has purposely fended off Japanese inroads into its economy. As a result, many South Korean products compete well in the world.

Japanese author Keitaro Hasegawa describes Japan's role in Asia as that of a fisherman who holds a line tied around the neck of a cormorant catching fish in its beak. The bird does the work, but the man reaps the reward since the string prevents the bird from swallowing. Japanese firms provide the means for other nations to export, but mainly at Japan's benefit. He sees China as the next cormorant.

Many Asians don't want domination by Japan, says Lee Poh Ping, a University of Malaya expert on Japan in Asia. He says Japan was dependent on Southeast Asia in the 1960s and 1970s, but now that has reversed. Japan relies on Asia for over 30 percent of its total exports, a three-fold increase since 1985.

But, Mr. Dowling warns, Japan faces a threat from ``Greater China,'' which includes China and the ethnic Chinese in Taiwan and Hong Kong.

This area has maintained such high growth rates that by the year 2002 its economy will outrank both Japan and Germany, and approach that of the US, based on World Bank figures. The anomaly, however, is that the average income level in this Chinese area would still be only about one-fifth of that in the developed nations.

China will not be competing head-to-head with Japan for markets within the next 10 years, he says. ``The tensions will be more political than economic. China is exporting low-value, labor-intensive goods, while Japan exports capital-intensive, high-value goods.

``Japan would like to be a dominant supplier to China, keeping it in a mercantile noose,'' Dowling says. ``Whether China allows that to happen remains to be seen.''

Some Japanese analysts like to quote Napoleon's warning about China: ``There lies a sleeping giant. Let her sleep, for when she wakes she will shake the world.''

A dynamic China, especially after Hong Kong reverts to the mainland in 1997, could give Asia a much more Sinic identity. ``Will the Chinese, and not the Japanese, overwhelm the smaller nations with their 1 billion-plus population?'' Ahmad asks.

FORMER Singapore Prime Minister Lee Kuan Yew says he tells Chinese leaders that China cannot repeat what Japan, Korea, and Taiwan have done: keep their domestic markets closed while they follow export-led growth. ``It's not possible, because the world is at a different stage. China is so big that she would drown the world [with goods],'' he says. China will need to open its markets more to foreign goods, he advises.

Until 1988, the rate of Japanese investment was higher in the US than in Asia. But after a rapid rise in the value of yen, Asia has benefitted from more Japanese investment than has the US.

The shift has reduced costs for Japanese companies exporting goods to the US and Europe - and back to Japan from overseas factories. Japan now imports more color TVs than it exports from its own shores. And with another rapid yen appreciation in 1993, a second Japanese investment wave in Asia may be in the offing.

The US, meanwhile, has tried to remain an economic player in the region. Both Presidents Bush in 1991 and Clinton in 1993 made export-promotion swings through Asia.

In some countries, the US is the biggest investor. In Singapore, for instance, US firms command $18 billion in investments, much of it in oil refining and high-tech. Singapore is the world's leading exporter of computer hard-disk drives.

The latest US initiative is an attempt to sell one of its strong points: environmental technology and services. Under a five-year, $100 million program, US officials are setting up shop in 32 Asian nations to help the region clean up its pollution.

``US companies often overrate the Japanese competition and avoid trying to do business in Asia,'' says one US trade official. Taking a cue from Japan's past practice of targeting markets, the US government is helping small American environmental companies match up with partners in Asia.

``This is totally new for the US government,'' the official says. ``We're trying to create demand.'' The effort, known as ``Green Key'' service, includes a computer database of contacts and information.

``The US can't repair its economy by itself,'' says Bilahari Kausikan, director of Singapore's East Asia and Pacific bureau. ``It must remain engaged in East Asia.''

Since 1989, many Asian analysts note, the US has had more trade across the Pacific than across the Atlantic. But they add that Asian nations are less and less dependent on the US market, relying more on each other - and on Japan.

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