COMPARING HIGH PERFORMANCE ASIAN ECONOMIES EAST ASIAN TIGERS. Prof. Ruthie Garcia Vera AP CGP

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1 COMPARING HIGH PERFORMANCE ASIAN ECONOMIES EAST ASIAN TIGERS Prof. Ruthie Garcia Vera AP CGP

2 The High Performance Asian Economies: (HPAE) (as designated by the World Bank) Hong Kong Indonesia Japan Taiwan The Four East Asian Tigers: Malaysia Singapore South Korea Thailand The two city-states of Hong Kong and Singapore, South Korea and Taiwan. They are also referred to as the Four Dragons or the Little Dragons.

3 The East Asian Tigers refers to the economies of Taiwan, Hong Kong, South Korea and Singapure. These economies are notable for maintaining exceptionally high growth rates, over 7% a year, from the 1960s to 1990s. Through this period, they became industrialized, even though they are not rich in natural resources.

4 These countries have risen out of extreme poverty to become some of Earth's richest nations. They stand as proof that extreme poverty is not an absolute condition, that actions can be taken to make populations wealthier over the course of just a few decades. In 2015 the last of the Four Asian Tigers officially overtook Japan in terms of GDP, placing them second only to China in terms of economic success.

5 The reason behind their astonishing growth is that they found their comparative advantage: Hong Kong and Singapore focused on being international financial centers and Singapore in particular also focused on becoming a port hub. Taiwan and South Korea focused on their manufacturing sector with an emphasis on information technology. All of these nations in one way or another became some of the leading exporters to the U.S. and they definitely export more than they import.

6 Average Annual Growth in Real GDP per Capita, Source: World Bank, World development Indicators: IMF World Economic Outlook Database.

7 What did the Tigers do Differently in Terms of Provoking Development? These nations kick started development in the 1960's by implementing import substitution: raising tariffs to reduce the imports of consumer goods, allowing a country's own industries to develop and stabilize. The Asian Tigers decided to capitalize on the growing materialistic attitude developing in Europe and North America and pursued an export-driven model of industrialization and development. This was achieved by rapidly increasing the production of goods that could be exported to the highly industrialized nations of the world.

8 Rankings on the Ease of Doing Business Index, 2011

9 Common Characteristics of the Tiger Economies All four territories had strong Chinese influence. Singapore had a population that included 75% ethnic Chinese, Hong Kong had 95% and Taiwan 98%. They were relatively poor during the 1960's and had an abundance of cheap labor. They had non-democratic and relatively authoritarian political systems, so the governments could easily drive through their plans for economic development.

10 Domestic consumption was discouraged through government policies such as high tariffs on imports, that led to the encouragement of high saving rates which allowed to invest in specific areas of industry. All four countries singled out education as a means of improving productivity, focusing on improving the education system at all levels and ensuring that all children attended elementary education and compulsory high school education. Money was invested heavily in the development of their university systems and in sending students to foreign universities.

11 Coupled with educational reform, they were able to leverage this combination into a cheap, productive workforce. The East Asian Tigers committed to equality in the form of land reforms, to promote property rights to small and medium-sized farmers, who then had security of tenure, which encouraged them to invest in their own land. Policies of agricultural subsidies and tariffs on agricultural products were implemented as well. This decreased rural discontent and also allowed investment in the mechanization of agriculture, which enabled for further industrialization to occur.

12 They established a banking system that favored their own states. They have also limited their foreign spending, investing solely in their nations. Trade unions were discouraged and governments encouraged managers to provide job security and other benefits in a paternalistic type of industrial organization.

13 Geography as a Factor The rise of these nations can be attributed to their favorable geography. South Korea and Taiwan are surrounded by water with regular and plentiful rainfall and a variety of rivers to act as base infrastructure. Singapore is in the perfect spot on the globe to act as a port for fuel services, and its small size help to make it appear more successful than it may actually be. Hong Kong was leased by the British in 1897 and acted as an intermediate the trading post between Britain and China, making it the perfect spot for European foreign direct investment in China. The rise of the Asian Tigers thus stands as proof that favorable geography can play a dramatic role in development, acting as an important catalyst for economic growth.

14 Problems with Export-Driven Trade Model The East Asian Tigers were strongly affected by the Asian Economic Crisis, to varying degrees. While Taiwan was not as strongly affected, South Korea was badly battered by the crisis. Because of the focus on export-driven growth, many of the Tigers became caught up in a game of currency devaluation. The current criticism of the East Asian Tigers is that these economies focus exclusively on export-demand, at the cost of import-demand. Thus, these economies are heavily reliant on the economic health of their targeted export nations. In addition, these nations have met difficulties after their initial competitive edge, cheap productive labor, no longer exists, especially with the emergence of India and China.

15 Sources of Growth, (Percent)

16 South Korea Once a subsistence agricultural country, South Korea spent much of the 20th century driving modern industries such as electronics, robotics and software development. According to the World Bank, South Korea s GDP grew by an average of 10% per year between 1962 and 1995 and it is now regarded as one of Asia s most advanced economies.

17 South Korea is a booming, trillion dollar economy. Its population is one of the most ethnically and linguistically homogeneous in the world, with the only significant minority being a small Chinese community. It is the 11th largest economy in the world. After WWII, their GDP per capita was comparable with levels in the poorest countries of Africa and Asia. The Korean War made conditions in Korea even worse.

18 Its citizens enjoy very high incomes and a standard of living rivaling that of wealthy nations such as Britain and Germany. It boasts the world's greatest number of people with internet access. It is home to many of the world's leading technological developers including Samsung, LG and the Kia Automotive company. Their success was achieved by a system of close government-business ties, including: directed credit import restrictions sponsorship of specific industries a strong labor effort

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20 Imports and Exports as a Share of GDP

21 Short History Korea was ruled by Japan from 1910 until the end of World War II. Under colonial rule there was no improvement in Korea's subsistence economy, and the failure to hold democratic elections caused political tension which resulted in a civil war between a dictatorship which favored communist principles at the North and a system based on market principles with a democratically elected government in the South. After the end of the Korean War, the United States, concerned with Communism's growth, aided South Korea in developing its market by subsidizing (paying for) 70% of South Korea's exports such as rice on the world market for reduced prices, giving Korea a significant advantage over the companies of other developing economies such as Egypt or Ecuador. This advantage helped Korea transition from a subsistence economy, producing largely agricultural products (like rice), to a major manufacturer of goods in just seven years ( ). The South Korean government instituted very good economic policies, funding excellent education programs in public schools and building vital infrastructure for their cities and ports.

22 Korea's population is one of the most ethnically and linguistically homogeneous in the world, with the only significant minority being a small Chinese community. Korea is one of the best educated countries in the world, with one of the highest rates of scientific literacy and mathematical knowledge. It's highly skilled, technologically educated public made Korea one of the world's foremost exporters of high-tech goods, including software and electronics.

23 Taiwan Taiwan s proximity to China and Chinese investment has helped establish a futuristic city filled with skyscrapers, high speed trains, and a strong education system. Foreign investment has meant that Taipei is home to some impressive headquarters such as Foxconn (Apple s products). In the early 1960s, Taiwan had a GDP per capital of just $170, but in 2015 it was $22,469. It may not be the wealthiest tiger, but it has experienced the most notable growth.

24 Taiwan has many elements in place for the successful development of high-tech and bio-tech industries. These include strong intellectual property protection, good infrastructure and networks, and ample funding. Beginning as a largely impoverished nation, Taiwan has grown to become one of Earth's economic leaders with a quality of life similar to richer European countries. Their consistent economic growth has made them one of the select few members of the Asian Tigers.

25 Short History In 1927, a war broke out between Chinese capitalists (the Kuomintang), and the Communist Party of China (Mao Zedong). The war lasted until 1950, when the Communists took over the Chinese mainland and the pro-capitalist Kuomintang retreated to Taiwan, where they established a new economy based on market principles. Taiwan started out with significant infrastructure (including roads and railroads) already in place, built by former Japanese colonists to extract rice and sugar from the farms within Taiwan. To help grow these crops, the Japanese also set up irrigation systems on Taiwanese farms which aided in food production. During the Cold War, Taiwanese food production was supported by the US government. To support the capitalist regime in power, the United States sent a total of about $4 billion to Taiwan from Taiwan used this money to invest in fertilizers and infrastructure to further boost crop production, leading to a surge in food productivity. By 1960, Taiwanese farmers were producing an average of three tons of rice per hectare ( square meters) of farm, the highest crop efficiency in all of Asia except for Japan. This efficient agricultural production provided a boost of wealth to the rest of the economy and helped transition Taiwan out of subsistence.

26 Starting in the 1960s, the capitalist regime decided to lower tariffs (taxes) on all imported and exported goods. With abundant infrastructure and with the civil conflict with China largely over, rich world corporations began to flock to Taiwan and construct factories, using its cheap labor to produce clothes and other knickknacks at a very low cost. This boom in foreign investment once again gave the government a surge of wealth, which it used to invest in Taiwan's "Ten Large Construction Projects"; investments in infrastructure which included the building of highways, seaports, airports and power plants. Like Korea, Taiwan also invested in technological education, creating a generation of students familiar with high-tech products. Both of these investments caused Taiwan's exports and industrial production to grow rapidly. Thus high food yields (once again helped in part by US foreign aid supporting the capitalist regime) combined with low tariffs, good infrastructure and a highly educated population turned Taiwan into one of the most prosperous economies in all of Asia

27 In Jan presidential elections, Democratic Progressive Party chairwoman and nominee Tsai Ing-wen came in first with 56.1% of the vote. The first unmarried woman elected president of Taiwan, Tsai was also the first elected to have never held another elected post. Taiwanese President Ma Ying-jeou and Chinese President Xi Jinping, Nov Source: AP Photo/Chiang Ying-ying President-elect Tsai Ing-wen Source: AP Photo/ Ng Han Guan

28 Hong Kong It was acquired by Britain from China in 1897 as a result of China's loss in the 1895 Sino-Japanese War. It is the world's busiest deep-water harbor. Considered banking capital of Asia.

29 The territory of Hong Kong is a large city of about 7 million people officially considered a province of China. Due to its 100 year exposure to Western culture and capitalist ideology, it traditionally has more in common with Europe and North America than with its Asian neighbors. Cheap labor and favorable tax incentives attracted many medium and large sized corporations to the city, and the 1970s and 80s saw a period of city-wide construction, with skyscrapers, public housing and commuter train lines all funded by the country s newfound wealth. Between 1961 and 1997, the GDP of Hong Kong grew by 180 times, making it one of the world s wealthiest countries. A supportive government, strong regulation and lack of public debt means that it is well placed for continued growth, albeit at a less dramatic pace.

30 Hong Kong is one of the most densely populated regions in the world with a population of over 7 million. Hong Kong still has a dual Chinese and English school system. Hong Kong has a varied mix of religions and all major religions such as Christianity, Hinduism, Buddhism, Daoism, and Islam.

31 Short History Where East Meets West In 1839, the British Navy went to war with China over the right to sell narcotics in the "Opium War". The British eventually used their superior military technology to win this war and in 1897, they forced the Chinese government to allow the British to "rent out" Hong Kong, a large trade city overlooking the Pacific Ocean. The British "leased" Hong Kong from the Chinese government for the next century, making the city an very important trade portal connecting China with the rest of Europe. In 1900, Hong Kong's trading seaport was the fourth largest in the world, attracting large amounts of foreign investment from companies in both China and Europe. This city received another sudden boost in foreign direct investment in the 1940s, when China's Communist Party began to win the civil war and hundreds of Chinese merchants fled China, fearing that the Communist government might take over their business. These merchants set up shop in Hong Kong, where they were allowed to continue doing business without government interference. This huge shift of money to Hong Kong helped to turn the city into Asia's unrivaled industrial center by 1960.

32 Hong Kong's citizens gradually became much wealthier than the residents of other Asian nations as the city continued to attract copious amounts of foreign investment. By the 1960s, Hong Kong was one of Earth's major producers of textiles (clothes and carpets), and had a virtual monopoly on European and North American tourism to China during the 1960s and 70s. It used this continuous flow of wealth to build vital infrastructure, including highways, subway systems and high-rise buildings at breathtaking speed. As Hong Kong families became wealthier, they could now afford to send their children to school, and the city became rapidly well-educated. Hong Kong soon became one of the world's leading manufacturers of high-tech products, including computer hardware, software and other electronics such as televisions, radio and microwaves. Hong Kong's considerable wealth also contributed to the rise of its banking sector, which became the major lender to businesses all over Asia. By the 1990s, Hong Kong was one of the most expensive cities in the world to live in with a standard of living matching that of Europe and North America.

33 Hong Kong's favoring right-wing market freedom (involving very low taxes, strong property rights and extensive market deregulation) is the reason for its rapid rise to prosperity. In its annual Index of Economic Freedom, the conservative Heritage Foundation has ranked Hong Kong as the "most free" economy in the world for the past 15 years and cited this as the reason for Hong Kong's rise to prosperity as an Asian Tiger. Although Hong Kong's favoring of capitalism certainly gave it an advantage, its rapid growth has more to do with its strategic location, which made it the portal of trade between China and Europe, thus making it a haven for foreign investment.

34 Singapore Like Hong Kong, Singapore s high growth economy is rooted in the world of finance. Prized for its impressive docks and strategic position in South East Asia, it was able to capitalize on its reputation as a trade hub. It is now one of the world s foremost currency exchange centers, and boasts an incredibly diverse expat community which is indicative of the high volumes of foreign investment received over the years. Singapore has the highest GDP of all the Four Asian Tigers.

35 Located on the Southern tip of the Malaysian Peninsula, Singapore is the third-smallest country in the world in terms of land mass, and more accurately described as a city rather than a country. Singapore is characterized by an export-oriented economy, relatively equitable income distribution, trade surpluses with the United States and other developed countries, and a common heritage of Chinese civilization and Confucian values. An incredibly clean city, nothing is allowed to dull the shine - even down to the banning of chewing gum.

36 The small island had no resources other than its strategic location and the skills of its nearly 2.7 million people. Singapore was previously owned by the British Empire until it was invaded and conquered by Japan during the Second World War. It later succeeded from the United Kingdom to become a sovereign state in Since independence, Singapore has enjoyed a rapid rise in incomes as a result of a boom in foreign direct investment. Singapore's success as a rapidly growing economy is perhaps the most easily explained of the Four Asian Tigers. Singapore happens to be situated in the perfect geographic location to promote foreign investment, where every ship going from Japan, China or Korea must pass right beside to get to consumers in Europe. As a result, Singapore has always had a huge advantage over other nations in being a center for international trade.

37 In the 1970s, Singapore used its geographic position to invest in key infrastructure like seaports, which made it easier for ships to dock along its coast. It became a haven for petrochemical refineries. Ships carrying oil from the Middle East to Japan and China would simply stop in Singapore, refine the chemicals, and continue on their way.

38 Singapore used this original surge in wealth to invest in public education. It soon had a skilled workforce able to attain high-paying jobs in the computer engineering sector. Singapore soon became a major exporter of computer hardware and biotechnology, generating further wealth in the region. Currently, Singapore is the ninth wealthiest country in the world in terms of national wealth per capita, and is a cosmopolitan site for tourism attracting wealthy families from all over Asia. The Port of Singapore is currently the busiest in the world, transporting one fifth of all shipping containers and half of the world's annual supply of crude oil. Its success as an extremely wealthy state stands as a testament to the role geography plays in promoting certain economies over others.

39 Other Tiger Economies Over time, the term Tiger has become synonymous with nations that achieve high growth by pursuing an export -driven trade strategy. More recently, the Southeast Asian nations of Indonesia, Malaysia, Philippines and Thailand have often been considered Tigers. The term is not limited to Asian nations; Ireland has been called the Celtic Tiger for its rapid growth in the 1990 Estonia is known as the Baltic Tiger for its presently high growth rates.

40 As countries develop, they are classified as different groupings, and the transitions are gradual. Countries may be at various stages of development and are developing in different ways and rates, therefore, it is referred as the development continuum.

41 REFERENCES