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Industry and Competitive Analysis

A. Tony Prasetiantono Week 2

Emerging Asia
 ‘Flying Geese’ Phenomenon  The Gang of Four Asian Tigers: South Korea, Taiwan, Singapore, Hong Kong  NICs = Newly Industrialized Countries  Export oriented industry  Strong government support  Hard-working people and entrepreneurship

Emerging Asia
    Next tigers: Thailand and Malaysia Strong inbound investment Stable political environment Reasonable infrastructure (particularly in Malaysia)

Emerging Asia: China
 1979: The government has established economic zones, including Guangdong and Fujian, to attract foreign investment.  Transformation from planned economy into market-oriented economy.  Many overseas Chinese joined the first wave of investors.  Hong Kong and Taiwan: rising costs.  1990: per capita GDP was < US$400.

The Growth Engine for the World’s Economy
 In the late 1980’s, Japan’s bubble economy started to decline.  Bad debt and business failures in 1990.  Deng Xiaoping: market reform policy, after the Tiananmen Square crackdown.  Zhu Rongji: modern fiscal, upgrading the basic infrastructure, negotiating to the WTO.  In 2002: leading recipient of FDI.  In 2003: US$53 billion of FDI.  1990-2004: US$500 billion, mostly in manufacturing  2003: Export at US$851 billion  2004: Export at > US$1 trillion (top 3 in the world).

India: the Most Robust Economic Growth Periods
 Market-oriented policies, deregulations, allowing more foreign investment.  Declining interest rate: good for either consumers and producers/investors.  Information technology  Compare to China: inferior infrastructure

Asian Financial Crisis 1997
 Bad debt (NPLs), overinvestment.  Overvaluation of currency (baht, rupiah, won).  International banks announced default on 26 Thai financial institutions.  Lack of foreign exchange reserves to fulfill foreign debt obligations.  Indonesia and the Philippines: too quiet to gradually restoring the confidence.

Current Development
 China recently climbed to 6th place in global GDP rankings.  India is also approaching the top 10.  Goldman Sachs: the total GDP of BRIC (Brazil, Russia, India, China) would surpass the US and the UK combined as the dominant economic centers within 30-50 years.

Basic Indicators: Population
      China India Indonesia Bangladesh Japan Vietnam 1.24 billion 1.05 billion 212 million 135 million 127 million 80 million

Poverty in Asia
 The majority of the population in the Asia Pacific region still live in poverty and have no substantial purchasing power.  There are at least 700 million people living in underdeveloped rural areas or on completely undeveloped farm land in China.  About 30% of these people have < US$200 per capita.  India also has a large portion of its population constantly struggling to feed themselves.

GDP and (GDP Per Capita)
 Japan $3,978 billion ($31,293)  China $1,237 billion ($966)  India $515 billion ($491)  South Korea $476 billion ($10,006)  Australia $410 billion ($20,969)  Taiwan $281 billion ($12,500)  Indonesia $173 billion ($817)  Thailand $126 billion ($2,052)  Malaysia $95 billion ($3,915)  Singapore $87 billion ($20,886)  The Philippines $77 billion ($964)  New Zealand $58 billion ($15,035)  Bangladesh $47 billion ($349)  Vietnam $35 billion

Purchasing Power Parity
 PPP is the true measure of how much people can afford to spend in day-to-day purchasing activities under a local market environment.

Purchasing Power Parity
 Japan $3,559 billion ($28,000)  China $6,008 billion ($4,690)  India $2,967 billion ($2,830)  South Korea $837 billion ($17,580)  Australia $559 billion ($24,500)  Taiwan $551 billion ($24,500)  Indonesia $739 billion  Thailand $426 billion ($6,920)  Malaysia $161 billion ($6,640)  Singapore $113 billion ($27,030)  The Philippines $317 billion ($3,970)  New Zealand $86 billion ($22,170)  Bangladesh [not available data]  Vietnam $191 billion

Comparison (1)
 Japan $3,978 billion ($31,293)  China $1,237 billion ($966)  India $515 billion ($491)  South Korea $476 billion ($10,006)  Australia $410 billion ($20,969)  Taiwan $281 billion ($12,500)  Indonesia $173 billion ($817)  Japan $3,559 billion ($28,000)  China $6,008 billion ($4,690)  India $2,967 billion ($2,830)  South Korea $837 billion ($17,580)  Australia $559 billion ($24,500)  Taiwan $551 billion ($24,500)  Indonesia $739 billion ($3,490)

Comparison (2)
 Thailand $126 billion ($2,052)  Malaysia $95 billion ($3,915)  Singapore $87 billion ($20,886)  The Philippines $77 billion ($964)  New Zealand $58 billion ($15,035)  Bangladesh $47 billion ($349)  Vietnam $35 billion ($436)  Thailand $426 billion ($6,920)  Malaysia $161 billion ($6,640)  Singapore $113 billion ($27,030)  The Philippines $317 billion ($3,970)  New Zealand $86 billion ($22,170)  Bangladesh [not available data]  Vietnam $191 billion ($2,380)

‘Big Mac’ Index
 McDonalds is the symbol of globalization  McDonalds exists in all over the world  Purchasing power parity could be represented by comparing the Big Mac product all over the world

Current Account Balance
       Singapore $20.3 Malaysia $11.9 Taiwan $24.8 Thailand $7.6 Philippines $4.2 Indonesia $6.6 Japan 125.7       China $35.4 South Korea $11.4 India $2.6 Vietnam −$0.2 New Zealand −$2.0 Australia −$25.9

Human Development Index
         Australia Japan New Zealand Singapore South Korea Brunei Malaysia Thailand The Philippines         China Indonesia Vietnam India Cambodia Myanmar Lao Bangladesh

Competitiveness Index
 Economic performance (domestic economy, international trade, foreign investment, employment, prices)  Government efficiency (public finance, fiscal policy, institutional framework)  Business efficiency (productivity, labor market, finance, management practices)  Infrastructure (basic, technological, health, environment, education)

Competitiveness, by Country
      Singapore (2) Australia (4) Taiwan (12) Malaysia (16) New Zealand (18) Japan (23)       China (24) Thailand (29) India (34) South Korea (35) The Philippines (52) Indonesia (58)

Political Risk
 The only obvious political risk is related to the existence of terrorism and terrorist group in Indonesia, the southern Philippines and small parts of Malaysia.  The negative image associated with terrorism not only hurts the country in receiving foreign investment but also directly affects the overall economic activities.

Financial Sector Problems
 China has a massive non-performing loan problem in the order of US$500 billion or 20-25% of total outstanding loans.  Negative equity, bank recapitalizations.