China Is Mauling Asia's Tigers
Kenichi Ohmae, formerly head of McKinsey & Co.
in Tokyo, is author of The Borderless World (1997) and The Invisible Continent
Tokyo-It took the Asian tigers-Taiwan, the Philippines,
Malaysia, Singapore, Thailand and Korea-more than 15 years to build their
economies into symbols of new development. It is taking China only a few
years to supplant them. Thus far, whenever China has competed directly
with another nation's industries, China has won.
Malaysia and Thailand spent 10 years building the expertise, production
base and infrastructure for a precision metalworks that could sell components
to Swiss watch manufacturers. The Chinese took over that business in only
The same is happening with electronics and machinery. Since 2000, the
currencies of Taiwan, Singapore, Korea, Japan, Thailand and Indonesia
have declined precipitously, according to currency and trend analysis
from Oanda.com. Stock prices of major Asian countries have also been devastated,
particularly when compared to China's.
Some countries, like Japan, Singapore and Taiwan, suffer more from Chinese
competition today than they suffered from the 1997 Asian economic crisis.
That currency crisis, triggered by such noted speculators as Julian Robertson,
the former head of the now-defunct Tiger Management Group, and George
Soros, a founder of the Quantum Fund, was simple and short-lived. The
second Asian economic crisis, just beginning in 2001, will not go away
China is doing to the rest of the Asian economy what Japan did to the
West 20 years ago. Each of the Asian tigers has its own tale of woe. Singapore
and Taiwan, for example, came through the 1997 turmoil relatively unscathed,
but now their manufacturers simply cannot compete with China's. Singapore
is thus becoming a kind of Asian Switzerland, betting its prosperity on
investments in China's growth. Significantly, Singapore's former prime
minister Lee Kwan Yew has become the chairman of the government pension
fund, a major investor in China. His is now in the most powerful position
in the country.
Indonesia, the Philippines and Thailand have been equally hard-hit, but
they lack Singapore's resources and imaginative strategy. They are likely
to suffer deprivation, fragmentation and unrest, with perhaps some resentment
brewing toward the people of Chinese descent within their borders.
Vietnam would seem able to compete-its labor costs are even lower than
China's-but the government is so corrupt, the business regulations so
onerous and the infrastructure so poor that it is rapidly being deserted
by foreign investors.
Malaysia is keeping its well-established electronic industry but losing
its newer businesses in electronics and machinery.
India will lose some of its software business to Chinese companies (whose
employees also speak English, the language of software development). However,
it will retain its lead in highly complex architecture and applications
programming. Other Asian countries that might have become tigers-such
as Laos, Cambodia and Myanmar-will no longer have the chance.
And then there is Taiwan, formerly one of the most prosperous countries
in Asia. Despite restrictions on direct contact with China, many Taiwanese
businesses are quietly relocating their factories and wealth there. Sooner
or later, Taiwan may find itself forced to reconcile with China-not for
military reasons, but because Taiwan will want to participate in the many
opportunities on the mainland. Today, Taiwanese businesspeople cannot
?y, telephone or ship products directly between their sites in, for example,
Taipei and Xiamen without passing through Hong Kong or Jinmen Island.
If that continues, Taiwan will hollow out as its entire business system
migrates across the Taiwan Strait.
It is already clear that China's growth is turning the rest of Asia upside-down.
When its dominant position is established in Asia over the coming years,
China will then pose a greater challenge to the political status of the
rest of world quo than that of Islamic extremists.
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