Asia: An Emerging Center of World Commerce : Pacific Rim: A huge consumer market is developing. The new trend is exchange and investment among the countries themselves, leaving the U.S. behind Japan and Taiwan in capitalizing on opportunities. : TRADE BOOM: The Rise of Intra-Asia Commerce

BANGKOK, Thailand â€”  Foreign investment, once considered a Trojan horse of neocolonialism, is changing the economic map of Asia.

Asian countries that once erected stiff barriers to foreign investment in manufacturing are now fighting one another to get it. And nations that once were the targets of foreign investment themselves have suddenly become leading providers of it.

The upshot is a major expansion of Asia’s industrial base that promises to bring the region through the Persian Gulf War less scathed than the rest of the world.

The wave of investment is also giving the leader--Japan--still more clout and creating influence for new investors, especially Taiwan.

The old top investor--the United States--is in retreat. American diplomats and executives warn that U.S. businesses are failing to take advantage of new growth in one Asian nation after another.

Most of all, Japan and Taiwan are taking advantage of the newly developing markets and changing trade flows.

A new “megamarket� for consumer and industrial products will emerge in the coming 10 years in South Korea, Taiwan, Hong Kong, Singapore, Thailand, Indonesia and Malaysia, Kenneth S. Courtis, senior economist for Deutsche Bank Capital Markets, predicted recently in Tokyo. Japanese investments in these countries, he said, ensure that Japan will be in the best position to take advantage of their booming growth.

Donald Gregg, U.S. ambassador to South Korea, said in an interview in Seoul that he fears that the United States will let the opportunities slip by and fail to gain economic benefits in Asia commensurate with the cost of providing security to the region.

Bob Martin, managing director of Colgate-Palmolive (Thailand) and former president of the American Chamber of Commerce in Bangkok, thinks that the United States is losing out to Japan because of a difference in strategies.

“Japan’s strategy is economic-driven. It affects how they structure their organizations and how they train their people--all based on that single preoccupation. The United States hasn’t articulated a strategy. . . . The United States has to develop a vision if it wants to compete,� he said.

Indeed, despite a huge reservoir of American investment from earlier years that is continuing to grow, the United States is no longer sure of even second place in investment in Asia.

Taiwan appears to have emerged as No. 2, overshadowing the United States in the Philippines, Thailand, China and Indonesia. In Malaysia, Taiwan has shot past the United States and Japan. Even tiny Hong Kong has outstripped new U.S. investors in China and Thailand. And in 1989, South Korea ranked second to Japan in Indonesia.

Southeast Asia has taken over from Northeast Asia as the world’s fastest-growing region--the home of the newest of the newly industrializing countries that are expected to challenge such European countries as England and France in the size of their economies by the turn of the century.

As a result, economists are predicting that an entirely new world power center is about to appear.

Northeast Asia is gaining, too, however. The manufacturing base of Japan, South Korea and Taiwan continues to grow as firms in all three countries move less sophisticated production offshore and turn their factories toward value-added goods.

Many goods that once flowed directly from Northeast Asia to the United States now come from Southeast Asian factories owned by Japanese, South Koreans and Taiwanese.

As a result, American trade deficits with Southeast Asia are rising even as longstanding American bilateral trade deficits with the three Northeast Asian nations are declining significantly.

In contrast, Japan’s trade surpluses, which are dwindling with the United States and the rest of the world, are getting a major boost in every Asian country except oil-producing Indonesia.

Not only the Japanese but other Asians as well are sending Japanese machinery to their new factories in Southeast Asia.

The Japan Foreign Trade Council predicts that Japan will send more of its exports to Southeast Asia this year than to the United States--a historic change.

Taiwan is following suit. Bolstered by shipments of machinery, parts and raw materials to its new plants in Southeast Asia, Taiwan for the first nine months last year recorded a bigger surplus in trade with Southeast Asia ($7.1 billion) than with the United States ($7 billion). That, too, was unprecedented.

Equally significant, Taiwan’s $6 billion in exports to Hong Kong (mainly for China, another major target of Taiwan investment) nearly equaled its sales to Japan ($6.09 billion) in the same period.

But Japan, in turn, is buying more from Southeast Asia.

“Within three to four years, Japan will become Thailand’s biggest market,� replacing the United States, predicted Hisahiko Okazaki, Japan’s ambassador to Bangkok. “By 1995, Japan will be the biggest market for all of Southeast Asia.�

U.S. firms that once exported all of their production back to the United States are also finding new Asian markets. One such company exports 25% of its Bangkok production of semiconductors to other Southeast Asian countries and sells a small portion to Japan, as well.

Thailand’s ambassador to Tokyo, Birabhongse Kasemsri, predicted that the recession in the United States will hurt his country’s exports. But “enormous� growth in export industries such as jewelry, garments and footwear gives Thailand a fall-back to face the effects of the Persian Gulf War that it did not have before, he added.

Thailand won’t suffer the 5% plunge in growth that occurred when the first oil shock struck in 1973-74 because of a newly diversified manufacturing base that was built with foreign investment, said Chuji Kikutani of the Japan External Trade Organization in Tokyo.

Because of the foreign investment-spurred expansion of regional trade, “Asia’s economy won’t do as badly as the world’s,� he said.

Most of the new spurt in trade is occurring between North and South Asia, rather than between neighboring nations in Southeast Asia, which maintain stiff tariff barriers against each other.

Even so, regional trade is expected to exceed U.S.-Asia trade by the year 2000. In 1989, intra-Asian trade amounted to $200 billion, compared to $271 billion for transpacific trade.

Without foreign investment, Thailand’s economy would be growing by no more than 2% to 3% a year instead of the 12% it recorded in 1989, Okazaki said. Nimit Nontapunthawat, chief economist of Bangkok Bank, had a higher estimate--6% a year--for Thailand’s growth without foreign investment, but he agreed that the impact has been enormous.

Foreign firms provide about one-fourth of all investment in Thailand, said Phisit Pakkasem, deputy secretary general of the National Economic and Social Development Board. About 30% of Thai exports come from foreign-owned factories, added Staphorn Kavitanon, deputy director of the Thailand Board of Investment.

A single Japanese firm, Minebea, has given Thailand its entire miniature bearings industry, which controls 45% of the global market for that product, Phisit said. Americans have provided a semiconductor industry. Japanese have developed automobiles and household appliances. And various foreign firms have built up Thailand’s textile and toy industries.

The technology that foreigners are bringing will help Thailand’s firms own develop, Phisit said. “By the mid-1990s we will have our own brand names� for sale on world markets, he predicted.

The growth is having ripple effects:

* Thailand is so strapped for new energy sources that Bangkok is negotiating with neighboring Laos to help that country build a new dam and hydroelectric plant whose electricity would be used by Thailand. The proceeds--about $200 million--would be Laos’ largest source of foreign currency.

* Singapore, having run out of space and workers for new factories, is promoting a “growth triangle,� an extraterritorial industrial park that encompasses the southern Malaysian state of Jobor and Indonesia’s Batam Island, 13 miles south of Singapore.

* Hong Kong and the neighboring Chinese province of Guangdong have attracted so many foreign factories that bank economist Courtis predicted that the “Hong Kong enclave� will enjoy a gross national product as big as France by 2000.

By the mid-1990s, Courtis added, the per-capita income of Taiwan, South Korea and Hong Kong “will be very close to that of the United Kingdom,� with Singapore’s even higher.

There seems to be no letup.

Thailand’s Board of Investment approved 752 projects worth $8.2 billion in 1989. In the first nine months of 1990, 243 projects, worth $2 billion, got under way and 483 more worth $7 billion were approved. And those figures include only investors seeking special privileges. No figures are kept for foreign investment in Thailand without such incentives.

Okazaki sees close parallels in the economic strength of Japan stemming from the post-1985 appreciation of the yen and that of Britain in the 19th Century, when its currency sustained the world trading system, or the United States while the dollar performed the same function in the 20th Century.

Japan’s economic power has led to what he called “a historic movement of industrial bases.�

“Last year, 90 new modern Japanese factories opened in Thailand--one every four days. Through September this year, 110 opened--or two every five days,� he said.

Despite the infrastructure bottlenecks--traffic congestion, ports filled with waiting ships, telephones jammed beyond capacity, water shortages and more--�they still keep coming. They factor the costs of the bottlenecks into their investment plans,� the Japanese ambassador said.

Okazaki predicted that Japan’s surplus in current accounts--the total of trade and such non-trade transactions as insurance, freight and tourism--could eventually fall to $20 billion a year.

“But $20 billion is still enough to finance continuing major investment in overseas manufacturing, although it may pinch Japanese ability to buy American real estate,� the ambassador said.

Japan’s power to act as a major foreign investor will continue “at least for the next 10 years,� he predicted.

Other Asian nations, although still far behind Japan, are contributing substantially to intra-Asian investment. Taiwan’s outflow of long-term capital was estimated at about $15 billion last year; Hong Kong, South Korea and Singapore are getting started.

Samsung Electronics now produces about 5% of its household electronics products overseas and will probably raise that to 20% five years from now, company executives said in Seoul. In synthetic fibers, overseas production is expected to rise to about 33%.

Even as they join the pack in investing overseas themselves, Asia’s four “tigers�--Taiwan, Hong Kong, South Korea and Singapore--continue to receive huge inflows of investment. And despite unofficial barriers that discourage investment in Japan, foreign investment there has more than doubled since 1986.

Every Asian country, including its most closed societies--North Korea, Vietnam, Laos and Myanmar--professes eagerness to promote foreign investment. So fierce has the battle for foreign investment become that leaders of ASEAN--the Philippines, Thailand, Malaysia, Singapore, Indonesia and Brunei--have agreed to exchange information in an attempt to avert excessive competition among themselves.

China sees foreign investment as a cure for the inefficiencies of its bureaucratic management. Taiwan sees China, with wages only one-tenth its own level, as an answer to its rising costs at home.

The Philippines sees foreign investment as the key to economic takeoff. Thais such as Thamassat University’s Prof. Chira Hongladarom may sneer at the Philippines as “a newly declining country,� but Manila is attracting capital. Annual Japanese investment in the Philippines, for example, more than tripled from 1985 to 1989--to $202 million.

Thailand leads at the moment in attracting foreign investment commitments--$21.5 billion in projects have been approved in two years and nine months. But investors, worrying about Bangkok’s infrastructure crunch, are beginning to give preference to Malaysia, where commitments have skyrocketed tenfold in two years to more than $9 billion in 1989.

“Investment has become so dynamic that there are changes every year in (manufacturers’) preferences,� said Albert Chang, vice president of Taiwan Liton Electronic Co.’s first plant in Thailand. His company decided originally to set up four factories in Bangkok but changed its mind and put three in Malaysia.

Indonesia, which attracted $4.7 billion in foreign investment in 1989, may be next. Or Vietnam. Japanese, Koreans and Taiwanese are ready to step up investment in Vietnam should an expected removal of a U.S. trade embargo eliminate political restraints.

American investors are also looking eagerly at Vietnam. “They want to tag along on Taiwan’s coattails there,� an American businessman in Taipei said.

Last year, the Vietnam News Agency reported that 193 joint ventures worth $1.3 billion with non-Communist partners had been approved since Hanoi adopted a new foreign investment law in 1987.

Although nearly everybody is complaining about a shortage of Thai engineers and managers, foreigners are drawn here by a vast supply of unskilled labor, low wages, a stable political system and a harmonious society that lacks any trace of the ethnic and religious tensions of its neighbors.

South Koreans, however, prefer Indonesia to Thailand. And some are even looking to Myanmar (formerly Burma).

Kim Woo Choong, chairman of South Korea’s Daewoo Group, said: “Everybody believes that Thailand will be the next NIC (newly industrialized country). But the Thai market is entirely dominated by Japan. For Korea, Indonesia is better than Thailand. And Burma is better than Indonesia. In Burma, there is Buddhism, the people are polite and there is a strong government. They have potential for growth and they are starting from scratch, so the growth will be large,� Kim said in an interview in South Korea.

“In 10 years, Burma could stage a strong drive (economically). They have many resources--oil, gas, agriculture, many minerals,� he added.

Kim said Daewoo has set up four textile plants in Myanmar that are “very successful� and has agreed to establish a plant to make home appliances entirely for export--in exchange for a government guarantee of an export monopoly for Daewoo. Kim said he expects home appliance exports from Myanmar to reach $300 million a year.

“I like to cooperate with them,� he added.

* U.S. LOSING GROUND: Asian growth is outpacing American investment. D18

By the year 2000, the six-country Assn. of Southeast Asian Nations (ASEAN) will be a bigger market for Japan than the United States. The following countries make up ASEAN: Malaysia, Indonesia, Philippines, Thailand, Singapore, Brunei JAPAN’S FOREIGN DIRECT INVESTMENT IN ASIA In billions of dollars 1985 $1.435 1986 $2.237 1987 $4.868 1988 $5.569 1989 $8.239 TOTAL JAPAN’S INVESTMENT 1951 to 1989 In billions of dollars: $40.465.THAILAND Thailand leads Southeast Asia in attracting foreign investment. Its economy grew by 12% in 1989, but would have grown 6% or less without the foreign input. Source: Japan Ministry of Finance