Southeast Asia continues to manage the problems arising from the crisis. Malaysia has set up a Corporate Debt Restructuring Committee to bring creditors and debtors together for coordination to bring about stability and similar bodies were initiated in Indonesia as well as South Korea in Northeast Asia. Thus, there is an active process of learning from each other.
The biggest country on the block in Southeast Asia, Indonesia, has also turned to proactive aggressive measure to tackle the crisis. Indonesia is in crisis mode as its stock market had plunged so deeply in October 2008 that it closed for three days.
Indonesia is trying to capitalize on its less exposure to the global economy and greater reliance on local spending and economy as a way to survive the crisis. It also expects to save US$1.5 billion in 2009 from lower spending on fuel subsidies with the oil price decline and will divert the money for an economic stimulus package. Spending on public infrastructure would also increase to US$9.1 billion (a one-third increase).
Meanwhile, Northeast Asia has seen a lot of initiatives to cope with the financial crisis as well.
Sensing an opportunity for better relations, China pledged to provide S$27 billion or 130 billion yuan in financing through three Chinese banks for Taiwanese small and medium sized businesses (SMEs) based on the mainland on 21 December 2008 at the 4th annual cross-strait economic forum in Shanghai attended by 400 scholars and officials from both sides of the Straits.
These SMEs would be accorded the same tax and loan policies as other local Chinese businesses in China. These are acknowledgement of Taiwan’s contributions to the mainland, investing US$64.9 billion in China in 2007 according to Taiwanese estimates. Thus, it is China’s turn to cushion the pain from the financial for some of these companies that are facing challenges.
In exchange, both China and Taiwan agreed to allow companies to participate in public infrastructure projects in each other locations.
Domestically, Premier Wen Jiabao has made job creation for graduate and laid-off migrant workers returning to their villages as the top priority in his administration. According to the Chinese Academy of Social Sciences (CASS), only 70% of the 5.6 million graduates were able to find jobs in 2008. This will be compllicated by the entry of 6.5 million graduate job-seekers in 2009.
As for migrant workers (210 million in all), up to 9 million of them have gone back to their hometowns after being laid off by China’s industries in the South whose production has been affected by the slowdown in the export markets and the global financial crisis.
From a macro perspective, the current world economic model involves China’s willingness to purchase hold on to the dollars and US Treasury Bills from their funds that they had earned from exporting to the US and in the process keeping US interest rates low. This releases money for Americans to spend and Americans went further and borrowed against those homes to release funds to spend even more. Both sides benefitted from this.
The global financial crisis and the US sub-prime crisis has dealt the beginning of an end to this partnership, resulting in high US employment, excessive American consumption with lower savings, inability of US to absorb Chinese exports. The current system now requires the Chinese consumers to pick up the slack and start spending, something culturally and financially difficult for the Chinese to do.
Without a comprehensive Western-style social, unemployment or health security, Chinese are reluctant to spend. The average Chinese consumer is far lower in per capita salary than their Western counterparts. This may require Americans to instead spend less, study harder, be more productive and invest more.
Being less affected by the global financial crisis thus far and having newfound legitimacy from attention lavished upon China to save the world, Chinese President Hu Jintao brought back into vogue China’s developmental system as a model.
In his commemorative speech for the 30th anniversary of China’s reforms, Hu referred to Marxism 34 times in his 18 000-word speech. The important economic features of China’s economic model, according to the Chinese Communist Party (CCP), included economic development as the central focus of the Party, stability as the foundation for economic growth, eradication of corruption, balancing public and private ownership.
The Chinese leadership sensed widespread disappointment with the American model of capitalism and wasted no time in reiterating the newfound importance of Marxism and the reinvigoration of state enterprise to overcome what the government perceives as the deficiency of the market mechanism.
Politics aside, Chinese economic and political stability are perhaps more crucial than ever here as Japan’s economic fallout from the global financial crisis deepens. First data released on 22 December 2008 indicated that Toyota would post its first operating loss (150 billion yen) in 71 years against the backdrop where Japan’s exports plunged 26.7% in November 2008 compared to one year ago, a new record in Japan’s industrial history.
Shipments of cars and electronics to the US decreased by yet another record-breaking number – 34%. The November 2008 trade deficit of 223.4 billion yen was much larger than the October deficit of 67.7 billion yen, reversing a surplus of 784.4 billion yen one year ago.
Agence France Presse, Reuters, Bloomberg News, “Japan’s gloom deepens as exports suffer record drop” dated 23 December 2008 in the Straits Times (Singapore: Straits Times), 2008, p. A7.
Ching, Cheong, “China adheres to Marxism” dated 22 December 2008 in the Straits Times (Singapore: Straits Times), 2008, p. A2.
Friedman, Thomas, “China to the rescue? No Way” dated 24 December 2008 in Today (Singapore: Today), 2008, p. B5.
Ho, Ai Li, “Beijing pledges $27b funds for Taiwan firms in China” dated 22 December 2008 in the Straits Times (Singapore: Straits Times), 2008, p. A8.
Kesavapany, K., “Changing fortunes, concrete action” dated 24 December 2008 in the Straits Times (Singapore: Straits Times), 2008, p. A15.
Quek, Tracy, “Jobs a top priority for govt, says Wen” dated 22 December 2008 in the Straits Times (Singapore: Straits Times), 2008, p. A11.
The New York Times, “Indonesia to get aggressive” dated 24 December 2008 in the Straits Times