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By Kenichi Ohmae

Kenichi Ohmae, formerly head of McKinsey& Co. in Tokyo, is author of "The Borderless World"" (1997) and "The Invisible Continent"" (2000).

TOKYO -- It took the Asian tigers -- Taiwan, the Philippines, Malaysia, Singapore, Thailand, and Korea -- more than 15 years to build their economies into symbols of new development. It is taking China only a few years to supplant them. Thus far, whenever China has competed directly with another nation"s industries, China has won.

Malaysia and Thailand spent 10 years building the expertise, production base and infrastructure for a precision metalworks that could sell components to Swiss watch manufacturers. The Chinese took over that business in only a year.

The same is happening with electronics and machinery. Since 2000, the currencies of Taiwan, Singapore, Korea, Japan, Thailand and Indonesia have declined precipitously, according to currency and trend analysis from Stock prices of major Asian countries have also been devastated, particularly when compared to China's.

Some countries, like Japan, Singapore and Taiwan, suffer more from Chinese competition today than they suffered from the 1997 Asian economic crisis. That currency crisis, triggered by such noted speculators as Julian Robertson, the former head of the now-defunct Tiger Management Group, and George Soros, a founder of the Quantum Fund, was simple and short-lived. The second Asian economic crisis, just beginning in 2001, will not go away so easily.

China is doing to the rest of the Asian economy what Japan did to the West 20 years ago. Each of the Asian tigers has its own tale of woe. Singapore and Taiwan, for example, came through the 1997 turmoil relatively unscathed, but now their manufacturers simply cannot compete with China"s, Singapore is thus becoming a kind of Asian Switzerland, betting its prosperity on investments in China"s growth. Significantly, Singapore"s former prime minister Lee Kwan Yew has become the chairman of the government pension fund, a major investor in China. His is now in the most powerful position in the country.

Indonesia, the Philippines and Thailand have been equally hard-hit, but they lack Singapore"s resources and imaginative strategy. They are likely to suffer deprivation, fragmentation and unrest, with perhaps some resentment brewing toward the people of Chinese descent within their borders.

Vietnam would seem able to compete -- its labor costs are even lower than China"s -- but the government is so corrupt, the business regulations so onerous and the infrastructure so poor that it is rapidly being deserted by foreign investors.

Malaysia is keeping its well-established electronic industry but losing its newer businesses in electronics and machinery.

India will lose some of its software business to Chinese companies (whose employees also speak English, the language of software development). However, it will retain its lead in highly complex architecture and applications programming. Other Asian countries that might have become tigers -- such as Laos, Cambodia, and Myanmar -- will no longer have the chance.

And then there is Taiwan, formerly one of the most prosperous countries in Asia. Despite restrictions on direct contact with China, many Taiwanese businesses are quietly relocating their factories and wealth there. Sooner or later, Taiwan may find itself forced to reconcile with China -- not for military reasons, but because Taiwan will want to participate in the many opportunities on the mainland. Today, Taiwanese businesspeople cannot fly, telephone or ship products directly between their sites in, for example, Taipei and Xiamen without passing through Hong Kong or Jinmen Island. If that continues, Taiwan will hollow out as its entire business system migrates across the Taiwan Strait.

It is already clear that China"s growth is turning the rest of Asia upside-down. When its dominant position is established in Asia over the coming years, China will then pose a greater challenge to the political status of the rest of world quo than that of Islamic extremists.

(c) 2002, Global Economic Viewpoint. Distributed by Los Angeles Times Syndicate International, a division of Tribune Media Services.
For immediate release (Distributed 3/15/02)

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