Academic journal article New Zealand International Review

CRISIS IN ASIA: China, Japan and the United States

Academic journal article New Zealand International Review

CRISIS IN ASIA: China, Japan and the United States

Article excerpt

Bryce Harland discusses the impact of the Asian economic crisis on great power relations in the Asia-Pacific region.

The crisis that began with the devaluation of the Thai currency in July 1997 has proved to be more serious than some experts expected, even at the end of last year. At a seminar the NZIIA sponsored with the Institute of Policy Studies at Victoria University of Wellington on 15 December, the prevailing view was that the problem was a normal part of the trade cycle and would be over in two years or so. But in the first half of this year it grew into a financial crisis and then into an economic one, and one that threatens the stability of the biggest country in South-east Asia. And the general view now is that it will last longer than was originally thought -- more like five years than two -- and have more serious consequences.

The Asian crisis has affected New Zealand more than was at first expected. Tourism is the industry that was hit first: at an early stage Air New Zealand had to cut out its flights to South Korea because the flow of tourists had dried up. Our forestry exports to Japan and South Korea over the past six months were down by $170 million on the same period last year. Educational services is another area that is suffering: the drop in the numbers of Asian students has forced what were boys' schools to take in more girls! Other New Zealand exporters have suffered as well, directly or indirectly, even though their competitive position has improved with the gradual decline of the New Zealand dollar. But, by good luck as well as good management, New Zealand's exports to North America and Europe have risen almost as much as its exports to Asia have declined. The deficit in its balance of payments is due to other factors -- debt servicing and imports. New Zealanders are still living beyond their means.

The Asian crisis underlines the point that has often been made before -- that New Zealand cannot afford to put too many eggs in one basket. East Asia is its biggest market, and was until recently the most rapidly growing. But it sells in many other markets, and they are important to it too. Diversification of markets, and of products, must remain New Zealand's strategy. It must be ready to exploit opportunities wherever they occur.

The crisis also underlines the need for a long-term approach to market development. There are some, particularly in Europe, who are almost gloating over Asia's problems. Perhaps their attitude is partly a response to all the talk about the `Asian miracle' and `Asian values'. But most observers assume that the crisis in Asia will eventually come to an end. The American economist Paul Krugman, who has in the past questioned the reality of the Asian miracle, now says `Asia will be back'. How long it will take to get Asian economies back on to a growth path, it is too early to tell. But the qualities that gave Asian economies such high growth rates in the last few decades have not disappeared. As Krugman has said, `the potential for fairly high growth is still there'. Nationalism, social discipline, and a heavy emphasis on education will continue to drive Asian economies forward, and upward, in the years to come. If New Zealand is to benefit from their revival in due course, it must keep up the relationships it has established with them, and retain their confidence in it.

One of the unexpected effects of the crisis in Asia has been to enhance the importance of China. The Chinese government decided, quite early in the piece, not to devalue its currency again, as it had in 1994. Beijing was in a position to do this, not only because it still has control of foreign exchange dealings but also because China has a big internal economy and is less dependent on external factors than most others. It is said that for this reason even George Soros does not think China will devalue. So for the time being China has become what the US Secretary of the Treasury has called `an island of stability' in Asia. …

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