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Financial Crisis: Northeast Asia to the rescue and its impact on Southeast Asia

Updated On: Dec 01, 2008

With Western countries grappling with the fallout of the global financial crisis, Northeast Asia powers Japan, China and Korea are helping the region and the world to lessen some impact of the global financial crisis.

The People’s Bank of China, China’s central bank, amassed an estimated (US$22.7 billion) worth of shares in British companies including Cadbury, HSBC, Unilever, Marks and Spencer and Tesco. Chinese officials have been given orders to deploy US$1.7 trillion of foreign exchange holdings through its four main international offices in London, Hong Kong, New York and, in Southeast Asia, through Singapore.

The People’s Bank of China’s arm State Administration of Foreign Exchange (SAFE) would move 5% of its portfolio into shares (a sum of US$85 billion) making it one of the largest sovereign wealth funds in the world and an equivalent of just over a month’s reserve accumulation of China.

The People’s Bank of China also announced on 9 November 2008 that it would expend S$877 billion for economic expansion to be used by the end of 2010. Initial spending will be used for low-rent housing, rural infrastructure such as roads, railways and airports. Another 10 trillion yuan or S$2.2 trillion is added by provincial governments to build infrastructure such as ports, housing and social spending to offset a sharp drop in demand for its goods by markets such as the US. This was announced on 23 November 2008.

Another China factor in stabilizing and region’s and the world’s economy is the news that since September 2008, China has become the US government’s largest foreign creditor, overtaking Japan, by owning US$585 billion worth of US Treasuries. Japan holds US$573.2 billion worth in the same period.

Japan is also doing its part to insulate Southeast Asia as much as possible from the global financial crisis. It reaffirmed since 13 October 2008 that it would continue to invest in ASEAN countries to make up for the slowdown in the US and the EU as much as possible. Hiroyuki Ishige, Vice Minister for Economy, Trade and Industry, continued to see ASEAN as a strong production base for the world.

Japan also initiated a cooperative venture known as the “East Asia Industrial Corridor” for ASEAN and China, South Korea, India, Australian, New Zealand as well as Japan to invest in their logistics systems and create new shipment links. This will include the New Delhi-Mumbai and the East0West Economic Corridor for ASEAN countries slated to be completed by 2025.

As for Korea, by remaining stable, Korea is doing its part to keep the regional economy in East Asia, including Southeast Asia, stable. On 18 October 2008, South Korea allocated an extra US$30 billion to help banks, businesses and currency market to stabilize. Out of this a sum of US$20 billion will be provided for small and medium-sized exporters through the state-run Korea Exim Bank while the government will provide another US$10 billion into the won-dollar currency swop market.

Sources:

AFP, “Capital aid in Korea” dated 19 October 2008 in the Straits Times (Singapore: Singapore Press Holdings), 2008, p. 16.

Agence France Press, “China is US’ No. 1 Foreign creditor” in The Straits Times (Singapore: Singapore Press Holdings), 2008, p. B18.

Bloomberg, “Beijing announces $877b stimulus plan” dated 10 November 2008 in Today (Singapore: Today), 2008, p. B1.

Pratruangkrai, Petchanet, “Japan to maintain Thai, ASEAN investment” dated 14 October 2008 in The Nation (Thailand: nationmedia), 2008, p. 4A.

Reuters, “Another $2.2 trillion boost for China economy” dated 24 November 2008 in My Paper (Singapore: My Paper), 2008, p. A5.

The Daily Telegraph, “China’s quiet S$23b splurge in UK stock market” dated 8 September 2008 in Today (Singapore: Today), 2008, p. B2.







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