MANAGERIAL ECONOMICS

MB 105

SYNOPSIS
Challenges Before Emerging Asian tigers

SUBMITTED BY:
DHEERAJ GARG
JYOTIKA WADHWA
RAVI KUMAR
ROBIN SINGH BHULLAR
ASIAN TIGERS – A TRADITIONAL APPROACH
The Four Asian Tigers or Asian Tigers are the highly developed economies of:
Hong Kong
Singapore
South Korea
Taiwan

These regions were the first newly industrialized countries, noted for maintaining
exceptionally high growth rates and rapid industrialization between the early 1960s and
1990s. In the 21st century, all four regions have since graduated into advanced
economies and high-income economies. These regions are still the world's fastest
growing industrialized economies. However, attention has increasingly shifted to other
Asian economies which are now experiencing faster economic transformation.

All four Asian Tigers have a highly educated and skilled workforce and have specialized
in areas where they had a competitive advantage. For example, Hong Kong and
Singapore became world leading international financial centres, while South Korea and
Taiwan became world leaders in information technology
. Their economic success stories became known as the Miracle on the Han River

 and the Taiwan Miracle and have served as role models for many developing countries,
especially the Tiger Cub Economies i.e
 Indonesia
Malaysia
Philippines
Thailand.

Since the Four Asian Tigers were relatively poor during the 1960s, these nations had an
abundance of cheap labor. Coupled with educational reform, they were able to leverage
this combination into a cheap, yet productive workforce. The Four Asian Tigers
committed to egalitarianism in the form of land reform. Also, policies of agricultural
subsidies and tariffs on agricultural products were implemented as well. These places
had strong industrial economies which set them apart from all other places in Asia.

Recent History of Asian Economies

Pre-1945

Prior to World War II, most of Asia was under colonial rule. Only relatively few states
managed to remain independent in the face of constant pressure exerted by European
power examples are Siam and Japan.

The Philippines was the first Asian country to trade with Latin America via Acapulco.
Tobacco, coconut, corn, and sugar trade was the most in demand during that time.
Singapore, founded in 1819, rose to prominence as trade between the east and the
west increased at an incredible rate. The British colony of Malaya, now part of Malaysia,
was the world's largest producer of tin and rubber. The Dutch East Indies, now
Indonesia, on the other hand, was known for its spices production. Both the British and
the Dutch created their own trading companies to manage their trade flow in Asia.

In 1908, crude oil was first discovered in Persia, modern day Iran. Afterwards, many oil
fields were discovered and it was learnt later that the Mideast possesses the world's
largest oil stocks. This made the rulers of the Arab nations very rich though the
socioeconomic development in that region lagged behind.

1945-1990

Following World War II, the People's Republic of China and India, which account for half
of the population of Asia, adopted socialist policies to promote their domestic economy.
These policies limited the economic growth of the region. In contrast, the economies of
superiors Japan, South Korea and the other tigers Taiwan, Singapore, and Hong Kong--
were economic successes, and the only successful economies outside of North
America, Western Europe and Australia. The Philippines from the post-World War II
until the late 1970s had the second largest economy in Asia

After World War II, under central guidance from the Japanese government, the entire
economy was undergoing a remarkable restructuring. Close cooperation between the
government, corporations and banks facilitated easy access to much-needed capital,
and large conglomerates known as keiretsu spurred horizontal and vertical integration
across all industries, keeping out foreign competition. These policies, in addition to an
abandonment of military spending, worked phenomenally well.

Another amazing economic success story is that of South Korea's, also referred to as
the Miracle on the Han River. The country was left impoverished after the Korean War,
yet was able to recover at double digit percentiles. Many conglomerates, also known as
Chaebols, such as Samsung, LG, Hyundai, Kia, SK, and more grew tremendously
during this period.

Taiwan and Hong Kong experienced rapid growth up till the 1990s. Taiwan became,
and still remains one of the main centers of consumer electronics R&D as well as
manufacturing. However, unlike in Japan and South Korea, the bulk of Taiwan's
economy is dependent on small to medium sized businesses. Hong Kong, on the other
hand, experienced rapid growth in the financial sector due to liberal market policies, with
many financial institutions setting up their Asian headquarters in Hong Kong. Till today,
Hong Kong has been ranked as the world's freest economy for many years running, and
it remains among one of the world's top 5 leading financial centers.

1991-2007

After the liberalization of the economy of India, the Indian economy coupled with the
Chinese economy to power Asia into being one of the hotspots for world trade. The
Chinese economy was already booming under the economic measures undertaken by
Deng Xiaoping, in the 1980s, and continuing under Jiang Zemin in the 1990s. In 2007,
China's economic growth rate exceeded 11% while India's growth rate increased to
around 9%. One of the factors was the sheer size of the population in this region.

Meanwhile, South Korea, Taiwan, Hong Kong and Singapore emerged as the Four
Asian Tigers with their GDPs growing well above 7% per year in the 1980s and the 90s.
Their economies were mainly driven by growing exports. The Philippines only began to
open up its stagnated economy in the early 1990s. Vietnam's economy began to grow in
1995, shortly after the United States and Vietnam restored economic and political ties.

Throughout the 1990s, the manufacturing ability and cheap labor markets in Asian
developing nations allowed companies to establish themselves in many of the industries
previously dominated by companies from developed nations. Asia became one of the
largest sources of automobiles, machinery, audio equipment and other electronics.

At the end of 1997, Thailand was hit by currency speculators, and the value of the Baht
along with its annual growth rate fell dramatically. Soon after, the crisis spread to
Indonesia, Malaysia, South Korea, Hong Kong, Singapore and many other Asian
economies, resulting in great economic damage on the affected countries (Japan
largely escaped the crisis). In fact, some of the economies, most notably those of
Thailand, Indonesia, and South Korea actually contracted. This later would be known as
the Asian financial crisis. By 1999, most countries had already recovered from the crisis

This is a list of some asian countries sorted by their 2009 gross domestic product at
market or government official exchange rates (nominal GDP) and PPP map is for year
2009. 2009 figures are estimates. Data produced by the International Monetary Fund as
of October 2009.
 GDP nominal GDP PPP GDP PPP per
Country or
millions of millions of capita Location
territory
USD USD USD

 China (PRC) 4,911,000 8,767,000 6,546 East Asia

Hong Kong 210,730 301,300 42,574 East Asia

 India 1,243,000 3,298,000 2,930 South Asia

 Indonesia 511,765 909,729 4,150 Southeast Asia

 Japan 5,073,000 4,141,000 32,817 East Asia

 North Korea 27,820 40,000 1,800 East Asia

 South Korea 800,300 1,343,000 27,791 East Asia

 Malaysia 221,606 383,388 14,081 Southeast Asia

 Philippines 166,909 317,964 3,515 Southeast Asia

 Singapore 181,939 239,146 51,226 Southeast Asia

 Taiwan (ROC) 379,400 693,200 29,829 East Asia

 Thailand 273,313 547,060 8,239 Southeast Asia

 United Arab
228,578 187,851 38,283 West Asia
Emirates

 Vietnam 89,829 240,757 2,793 Southeast Asia

Challenges for Singapore

1 Maintaining high rates of economic growth

Singapore's economy has grown from $2 billion 50 years ago to $250 billion

2 Improving living standards which are already high

3 Providing better transport at affordable prices

In the future, the Government would have to satisfy people's higher expectations of
comfort, convenience and congestion-free travel along with providing affordable fares

4 Stamping out diseases of affluence at affordable health-care rates

People live longer now and more develop diseases linked to an affluent lifestyle, such
as cancer, heart disease, diabetes and kidney failure, instead of infectious diseases.

5 Helping to keep workers employed till age 75

In 50 years, Singaporeans' life expectancy has risen from 60 to 80 years of age, and the
retirement age has been raised from 55 to 62.

6 Getting young people to marry and have children

Development has led to a plunge in birth rates here.Fewer women are getting married,
and those who do are giving birth to fewer babies.

7 Supporting an ageing population

This will be a problem as an increasing number of old people will live longer, while fewer
young people will be around to work and support them. Now, 9 per cent of the
population is aged above 65. By 2030, this will double to 20 per cent.

8 Getting more land

In the last 50 years, Singapore's land area has expanded by more than 20 per cent
through reclamation.As the population and economy continue to grow, more land would
be needed, and its use balanced between the economy, housing and recreation.

South Korea

Foreign trade surplus is growing, increasing friction, increasing pressure on the

currency appreciation; domestic market prices of assets such as real estate increasingly
out of control, macro-control weakness, domestic demand growth and thus has not
effectively replaced external demand as the main force for economic growth.
South Korean market economy’s, technological and industrial base is relatively weak .
From germinal question is: once early in the development of low-end labor-intensive
industry it needs to upgrade to a period of sustained economic growth. However, with
China now closing the technology gap and capable of capturing a significant global
market share in some of these manufacturing industries, South Korea now needs to
upgrade and innovate.

On top of the China problem, South Korea also faces fierce competition from
neighbouring countries whose governments are also realigning their economic policies
in order to stay ahead in the East Asian reshuffle. For example, the Japanese
Government announced that it would pump money into four new technology areas:
information technology, biotechnology, nanotechnology and environmental technology

Challenges to Taiwan

Taiwan has no seat at the United Nations, having lost it to China in 1971. Repeated
attempts to regain representation at the UN have been blocked.

Taiwan is an island which has for all practical purposes been independent for half a
century, but which China regards as a rebel region that must be reunited with the
mainland - by force if necessary.

It is involved in complex dispute with Brunei, China, Malaysia, the Philippines, and
Vietnam over the Spratly Islands, and with China and the Philippines over Scarborough
Reef

For the past decade, Taiwan’s relations with its Latin-American allies have, to a great
extent, been weakened due to China’s reinforced diplomatic strategy

Hong Kong

Development in Hong Kong and other major cities needs to become more sustainable.
Hong Kong, however, faces additional problems such as potential increases in
population and a corresponding need for additional housing and many other facilities.
Ten years after the territory was handed back to the Chinese, pollution is one of the
biggest problems facing the former British colony as it bears the environmental
consequences of China's rampant economic growth.

Part of the problem has been that those same vested interests, with government
collusion, have kept the territory's cost structure too high relative to its productivity and
its competition, especially China. Real-estate prices in Shanghai are a quarter of those
in Hong Kong.

Chinese Premiers have made it clear that full democracy is not an option for the
territory.

JAPAN

Economic Challenges

While Japan was not at the epicenter of the global financial crisis, with Japanese banks
having better balance sheets and much less exposure to toxic financial commodities,
the ensuing collapse in export demand and financial spillovers have plunged Japan’s
economy into its severest recession in many decades. After expanding by 2.3 per cent
in 2007, GDP contracted by 1.2 per cent in 2008, and then by more than 5 per cent in
2009.

Moreover, Japan has slipped into sustained deflation which now presents a difficult
challenge to the Bank of Japan’s monetary policy. Deflation puts pressure on business
and government through higher debt burden and reduced sales and tax revenue. If
business responds to deflation by cutting wages and government by increasing taxes or
cutting expenditures, a vicious deflation cycle could occur, leading to further contraction
of GDP. Indeed, nominal GDP shrank 6 consecutive quarters until the 3rd quarter of
2009 and the nominal GDP level of that quarter was still only back to the level of 1991.

Political Challenges

The new coalition government, led by the Democratic Party of Japan (DPJ) with Yukio
Hatoyama as Prime Minister, is the first government not led by the LDP in the 16 years.
This has meant a departure from the ‘iron triangle’ politics of the LDP, business and
bureaucrats, which created deep-rooted and vested interests amongst those wielding
power.
 There are several apparent and latent problems facing the DPJ-led coalition
government. In particular, security policy, including the U.S. military presence in
Okinawa, requires an urgent solution, given the serious tension and friction that has
been created between the Obama administration and the Hatoyama government. This
year is the 50th anniversary year of the US-Japan Security Treaty, but the U.S, is
currently in no mood of celebrating this anniversary.

Other important policy issues facing the DPJ government this year include:

construction of a new economic growth model

fiscal reconstruction

pension system reform

policy formation over Japan policy towards East Asian Community.

Environment Challenges

In the 2006 environment annual report,the Ministry of Environment reported that current
major issues are global warming and preservation of the ozone layer, conservation of
the atmospheric environment, water and soil, waste management and recycling,
measures for chemical substances, conservation of the natural environment

Challenges to U.A.E.
UAE must grapple with the same challenges that have Afflicted the poorer Middle East states:
rapid population growth, lack of economic diversification, low oil prices, low water supplies and
dependence on foreign labor. At the same time, the UAE's most charismatic leader and only
president -- Abu Dhabi Ruler Shaykh Zayid -- is in poor health and lacks a strong successor.
Some analysts question whether the federation's will remain unified after Zayid's death.

With tolerance wearing thin for behavior considered inappropriate, more and more Emiratis are
denouncing the "offensive" customs of the very foreigners who are contributing to their
country's success. They have become a minority. Their traditions are threatened and Arabic is
no longer a first language. They are surrounded by foreigners, and live in constant fear for our
children because of the spread of drugs and a rise in crime rates, echoing a sentiment felt by
many "nationals," as they are commonly called.

An unprecedented rate of development, transient population and a high ecological footprint

(per capita measurement of environmental impact) are some environmental challenges facing
the UAE.

The UAE has valuable habitats such as coral reefs, crucial for local fisheries, and sea grass
beds that are vital for dugongs and green turtles. Besides, there are intertidal areas, which
attract a large number of migrant shore birds. Among the country's richest habitats, the
ecological worth of these habitats is, unfortunately underestimated.

Challenges before Vietnam

Nevertheless, poverty is still common in rural areas, and increasing urban affluence has
stimulated migration from poor rural provinces into the cities adding to the social
problems there. Wages for low-skill jobs are minimal and unemployment is high and
increasing as the country progressively adapts to the world market economy.

Pollution:
Most of the infrastructure in Vietnam was built during the colonial period, and is now in
desperate need of replacement. Some of the rivers and lakes in urban areas are little
more than open sewers, and levels of heavy metal and other industrial pollutants are
well above safe levels in some areas.

Many of Vietnam’s hospitals are in antiquated colonial buildings. Equipment is basic,

and medical staffs often lack necessary skills and experience.

logging and slash-and-burn agricultural practices contribute to deforestation and soil

degradation; water pollution and overfishing threaten marine life populations;
groundwater contamination limits potable water supply; growing urban industrialization
and population migration are rapidly degrading environment in Hanoi and Ho Chi Minh
City

Challenges before China

Pollution.

Pollution is a major problem in many industrialised cities. Increased car ownership has
led to problems of smog and worsening air quality. Pollution also occurs from China’s
vast industrial sector.

The growing demand of the Chinese economy has placed great demands on China’s
creaking power infrastructure. This has led to the creation of projects like the Three
Gorges Dam. This has been criticised for creating environmental and social problems.

China’s economic growth has benefited the south and eastern regions more than
anywhere else. This has created a growing disparity between north and south. The
agricultural north has, by contrast, been left behind. Many farmers struggle to make a
living. Therefore, this has encouraged a migration of workers from north to south. China
has struggled to deal with this regional inequality.

In particular the Chinese banking sector has a bad reputation for making bad loans.
Many loans are not repaid back. This is a legacy of the Communist intervention in
industry.

It sounds a paradox that the Chinese economy can grow at 8% and yet unemployment
is still a problem. The reason is that there are still many state owned enterprises which
are grossly inefficient.
The Chinese Yuan has been tied to the dollar. As the dollar had devalued the Yuan has
also devalued. However, it is argued by many (especially in the US) that the Yuan is
undervalued against the US dollar by up to 40%. The impact of an

undervaluation of the Yuan is that: * Increase inflationary pressure in the Chinese

economy

* Make it expensive for Chinese to buy foreign goods.

* Give an artificial advantage to Chinese manufacturers.

Challenges before India

Slow agricultural growth is a concern for policymakers as some two-thirds of India’s

people depend on rural employment for a living.

Corruption  has been one of the pervasive problems affecting India. The economic
reforms of 1991 reduced the  red tape, bureaucracy and the  License Raj  that had
strangled private enterprise.

The literacy rate of 65% is still lower than the worldwide average and the country suffers
from a high dropout rate.

One of the critical problems facing India's economy is the sharp and growing regional
variations among India's different states and territories in terms of per capita income,
poverty, availability of infrastructure and socio-economic development.  

Official unemployment exceeds 9%. Regulation and other obstacles have discouraged
the emergence of formal businesses and jobs.
Some 600 million Indians have no means of electricity at all.   While 80% of Indian
villages have at least an electricity line, just 44% of rural households have access to
electricity.  Some half of the electricity is stolen, compared with 3% in China.

Conclusion
Asia's large economic disparities are a source of major continuing tension in the region.
While global economic powers China, Japan, India, and South Korea continue powering
through, and Indonesia, Malaysia, Philippines, Thailand, Laos, Cambodia and Vietnam
have entered the path to long-term growth, regions right next to these countries are in
need of severe assistance.

The economies of Asia are expected to be unequally divided for a long period of time.
East Asian nations such as economic leaders China, Japan and South Korea will
continue to flourish. Japanese products such as Sony and Hitachi are commanding
premium prices in the western world. South Korean conglomerates Samsung and LG
are respectively the second and fifth largest in Asia in terms of annual revenues. These
two rivaling countries are expected to be joined by new economic competitors such as
China and India. On the other hand, the Middle East and a few parts of South East Asia
are will be in a state of trouble.

Yet another potential global danger posed by the economy of Asia is the growing
accumulation of foreign exchange reserves. The countries/regions with the largest
foreign reserves are mostly in Asia - China (Mainland - $2,454 billion & Hong Kong -
$245 billion, June 2010), Japan ($1,019 billion, June 2009), Russia ($456 billion, April
2010), India ($284 billion, July 2010), Taiwan ($372 billion, September 2010), the
Republic of Korea ($286 billion, July 2010), Singapore ($206 billion, July 2010). This
increasingly means that the interchangeability of the Euro, USD, and GBP are heavily
influenced by Asian central banks. Some economists in the western countries see this
as a bad thing, prompting their respective governments to take action.