ASEAN-Japan Industrial Cooperation: An Overview 9789814377140

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The ASEAN Secretariat, based in Jakarta, was formally established by an agreement signed by the ASEA:'IJ Foreign Ministers during the First Meeting of ASEAN Heads of Government in Bali in February 1976. The Secretariat provides a central administrative organ for the co-ordination of the activities of ASEAN bodies and the implementation of ASEAN projects and activities. It is headed by a Secretary-General, appointed on a rotational basis among member countries. The Secretariat has three functional bureaus- Economic, Science and Technology, and Social and Cultural - each headed by a Director. The Japan Institute of International Affairs ( JIIA), founded in 1959 by former Prime Minister Shigeru Yoshida, is a non-profit research organization concerned with international affairs. The Institute's priority areas of research are on the ASEAN countries, China, Korea, the Soviet Union andJapan's relations with these countries. Research projects are conducted by the Institute's research staff members in co-operation with university scholars and researchers from other institutions in the public and private sectors. Resear·ch output is published in the form of either books or articles in any of the Institute's five periodicals, including the monthly Kokusai Mandai (International Affairs). The]IIA currently serves as the secretariat in japan for the Pacific Co-operation Committee, the ASEAN Regional Studies Promotion Programme, and the japan-Indonesia Conference. The Institute of Southeast Asian Studies was established as an autonomous organization in May 1968. It is a regional research centre for scholars and other specialists concerned with modern Southeast Asia, particularly the multi-faceted problems of stability and security, economic development, and political and social change. The Institute is governed by a twenty-two-member Board of Trustees comprising nominees from the Singapore Government, the National University of Singapore, the various Chambers of Commerce, and professional and civic organizations. A ten-man Executive Committee oversees day-to-day operations; it is chaired by the Director, the Institute's chief academic and administrative officer. The ASEAN Economic Research Unit is an integral part of the Institute, coming under the overall supervision of the Director who is also the Chairman of its Management Committee. The Unit was formed in 1979 in response to the need to deepen understanding of economic change and political developments in ASEAN. The day-to-day operations of the Unit are the responsibility of the Co-ordinator. A Regional Advisory Committee, consisting of a senior economist from each of the ASEAN countries, guides the work of the Unit.

ASEAN-JAPAN INDUSTRIAL CO-OPERATION

An Overview

RESEARCHERS ASEAN Indonesia

Dorodjatun Kuntjoro-Jakti (Team leader) Malaysia

Osman Rani Hassan Toh Kin Woon Anwar Ali Philippines

Alejandro Reyes (Team leader) Thailand

N athabhol Khanthachai W achana Sangratsamee Thamrong Chomaithong Wilai Prachanpol Singapore

Chew Soon Beng Rosalind Chew Francis Chan Institute of Southeast Asian Studies

N arongchai Akrasanee

JAPAN R. Hirano T. Okabe S. Yamakage Y. Kurowanagi M. Sakurai

ASEAN-JAPAN INDUSTRIAL CO-OPERATION An Overview

edited by

M.K. Chng and

R. Hirono

The ASEAN Secretariat and

Japan Institute of International Affairs in collaboration with

ASEAN Economic Research Unit Institute of Southeast Asian Studies

Published by Institute of Southeast Asian Studies Heng Mui Keng Terrace Pasir Panjang Singapore 0511 All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior consent of the Institute of Southeast Asian Studies.

© 1984 Institute of Southeast Asian Studies ISBN 9971-902-53-2

The responsibility for facts and opinions expressed in this publication rests exclusively with the contn"hutors and their interpretations do not necessarily riflectthe views or the policy '!/the Institute or its supporters.

Printf'd and Bound by KIN KEONG PRINTING CO. PTE. LTD.- Republic of Singapore.

Contents

List of Tables List ofFigures Foreword Introduction

IX XI XIII XV

PART ONE: ASEAN OVERVIEW 1. INDUSTRIAL AND RELATED TRENDS IN JAPAN Macro-Economic Aggregates Gross Domestic Product Population, Labour Supply, and Employment Structure Savings and Investments Exports and Imports Industrial Structure of Japan

3 3 3 3 6 6 8

2. INDUSTRIAL AND RELATED TRENDS IN ASEAN

13 13 13 15 20 21 21 23 23 26

Macro-Economic Aggregates Economic Growth and Dynamism Output and Employment External Trade and Finance Food Production Energy Industrial Development Industrial Structure A Brief Review of Industrial Policies

3. ASEAN-JAPAN ECONOMIC RELATIONS ASEAN -Japan Trade Existing Trade Relations Direct Investment Foreign Investment Japanese Direct Investment in ASEAN Transfer of Technology Japanese Government's Economic Assistance to ASEAN

31 31 31 44

44 46 49 50

vi

Contents

4. POLICY ISSUES AND PROPOSED POLICY STUDIES Policy Implications of ASEAN-Japan Relations on Industrialization of ASEAN andJapan, and Policy Recommendations Relocation of Industries Trade Direct Investment and Joint Ventures Transfer of Technology Skills Development Additional Resource Flows Development of Resource-based Industries Development of Small and Medium-scale Industries Role of the Private Sector Proposed Policy Studies Schemes for Effective Transfer of Technology and Skills Development Development of Resource-based Industries Promotion of Small and Medium-scale Industries in ASEAN Measures to Promote ASEAN-Japan Trade in Manufactured Goods Japanese Investment for ASEAN Industrialization References

55

PARTTWO: JAPANOVERVIEW

67

1. JAPAN-ASEAN INDUSTRIAL CO-OPERATION: ECONOMIC ISSUES Introduction Post-war Economic Development of japan and the ASEAN Countries Post-war Economic Growth of Japan Economic Development in the ASEAN Countries Japan's Trade with the ASEAN Countries General Characteristics of the Trade between Japan and ASEAN The Balance of Trade between Japan and ASEAN Japanese Investment in ASEAN The General Characteristics of Japan's Investment in ASEAN The Inducement Factor in Japanese Investment in ASEAN Overseas Investment by Japanese Small Industry The Economic Impact on the Host Country Technology Transfer to the ASEAN Countries General Pattern of Technology Transfer Technology Transfer from Japan to the ASEAN Countries Japanese Industrial Adjustment and Industrialization in ASEAN Intra-ASEAN Industrial Co-operation and Japanese Foreign Economic Policy Conclusion

55 55 56 57 58 58 58 58 59 59 59 59 60 61 61 62 63

69 69 70 70 71 79 79 80 87 87 90 91 92 92 92 93 94 99 100

Contents

Appendix References 2. JAPAN-ASEAN INDUSTRIAL CO-OPERATION: NONECONOMIC ISSUES Introduction Understanding ASEAN Politics of ASEAN Economic Co-operation Socio-Political Implications ofjapan-ASEAN Economic Relations on the International Scene Socio-Political Implications ofjapan-ASEAN Economic Relations on the Domestic Scene Accumulation and Dissemination of Knowledge in the ASEAN Region Towards Harmonious National and Regional Integration Conclusion Appendix References

VII

101 102

107 107

107 109 110 113

115 117 118 119

121

List of Tables

PART ONE 1. 2. 3. 4. 5. 6. 7.

8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. 22. 23. 24.

Japan: Rate of Capital Utilization Japan: Population Size and Supply of Labour, 1981-2015 Japan: Employment Structure, 1960, 1970, 1985, 2000 Japan: Gross National Expenditure at Constant Prices Sectoral Distribution of Japanese GDP, 1960 and 1979 Structure of Manufacturing Value-added, 1972, 1977, 1979, 1980 Structural Changes of Japanese Industry under the Seven-year SocioEconomic Development Programme Production Structure in "The Outlook for and Problems of Japan's Industrial Structure in the '80's" ASEAN Basic Economic Data ASEAN: Data Relating to International Finance Structure of ASEAN's Manufacturing Value-added, by Current Prices Direction of Exports of ASEAN Countries, 1980 Sources of Imports of ASEAN Countries, 1980 Value of Imports, Exports and Trade Balance of ASEAN Countries withJapan, 1971-80 Direction of Trade Commodity Composition of Exports, Japan's Share, and Percentage Increase, 1972/73 and 1979/80 Japan's Imports and Imports from ASEAN: Commodity Composition, ASEAN Shares, and Percentage Increase ASEAN's Exports to Japan, by Products Commodity Composition of Imports, Japan's Share, and Percentage Increase, 1972/73 and 1979/80 Japan's Exports and Exports to ASEAN: Commodity Composition, ASEAN Shares, and Percentage Increase Japanese Private Foreign Investments in ASEAN Countries Japanese Technical Co-operation Expenses, by Region Japanese Governmental Financial Assistance to ASEAN Japanese Technical Co-operation to ASEAN: Acceptance of Trainees and Dispatch of Experts

4 5 5 7 9 9 10 11 14 19 24 32 33 34 35 36 37 39 41 42 47 50 51 52

X

List of Tables

PART TWO 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11.

ASEAN Trade Matrix, 1972 ASEAN Trade Balance Matrix, 1972 ASEAN Trade Matrix, 1981 ASEAN Trade Balance Matrix, 1981 Japanese Overseas Investment Japanese Direct Investment in the ASEAN Countries, by Industry Industrial Structures in ASEAN, Japan, and the Republic of Korea Changes in Structure of Production Distribution of the Labour Force, by Sectors Coefficient of Movement in ASEAN, 1960-80 Stock of Foreign Investment for ASEAN

81 8~

84 86 88 89 94 95 96 97 98

List of Figures

PART TWO 1. Japanese Structure of Manufacturing Production, Imports and Exports 2. Changing Structures of Production and Labour Force in the ASEAN Countries 3. Structure of Merchandise Imports 4. Distribution of Merchandise Exports 5. Distribution of Manufacturing Value-added 6A. Structural Change in ASEAN (including Fuel) 6B. Structural Change in ASEAN (excluding Fuel and Food)

72 73 74 75 76 77 78

Foreword

One of the central objectives of the Association of Southeast Asian Nations (ASEAN), as embodied in the Bangkok Declaration under which ASEAN was founded, is the promotion of Southeast Asian studies. In this context, ASEAN warmly welcomed the offer ofMr Zenko Suzuki, then Prime Minister ofJapan, in early 1981 to support the launching of an ASEAN Regional Studies Promotion Programme. After extensive consultations among ASEAN member countries and between ASEAN and Japan, it was agreed that this ASEAN Regional Studies Promotion Programme, initially to extend over a period of five years, should focus on policyoriented socio-economic research. Given the overriding importance that ASEAN attaches to economic development and the vital role of ASEAN -Japan economic relations in this regard, ASEAN -Japan Industrial Co-operation was adopted as the first topic of research under the Programme. The present volume is the fruit ofthe first phase of research conducted under this topic. The recent history of ASEAN-Japan relations has been marked by a degree of ambivalence. As the first Asian nation to industrialize successfully and to have risen as a phoenix from the ashes of war-time destruction to the leading heights of industrial and technological power, Japan has always been held with a degree of awe and admiration by its southern ASEAN neighbours. Such awe and admiration have, however, been tinged with a certain amount of suspicion derived from war-time memories, especially as the impact ofJapan's post-war economic expansion becomes increasingly felt in the ASEAN region. From the Japanese side, historical circumstances and the need for economic reconstruction in the early post-war years made it unavoidable that, initially, its external relations were largely oriented towards the West, especially the United States. However, as japan rose to global economic prominence, and its economic presence in Southeast Asia grew, it has increasingly come to attach greater importance to its relationship with the ASEAN countries. ASEAN first approached] a pan collectively in the early 1970s on the question of Japan's production of synthetic rubber and its adverse impact on the ASEAN economies. From such narrow beginnings, the dialogue has quickly expanded into the present broad-based consultative framework of the ASEAN-Japan Forum. Given the historical background, there is a general recognition that while economics must remain the central pillar of ASEAN-Japan relations, the socio-political context under which such economic relations evolve is also of prime importance. Thus, a

xiv

Foreword

central objective of the ASEAN-Japan dialogue is the development of greater mutual awareness, understanding, friendship, and trust between the peoples of ASEAN andJ a pan, especially among the younger generation. In this regard, it is particularly heartening that the present Programme has begun to bring together many young researchers from both ASEAN andJ apan in collaborative research on various important and pressing issues of mutual concern. The interactive thought process involved in such research, and the development of common perceptions on a wide range of issues, cannot but help improve the effectiveness of the dialogue and establish ASEAN-Japan relations on a firm basis. The ASEAN Secretariat and the japan Institute oflnternational Affairs, as the ASEAN and japanese coordinating units for the Programme respectively, are happy and honoured to be playing a part in this process.

Chan Kai Yau Secretary-General ASEAN Secretariat Jakarta

31 March 1984

Toru Nakagawa Chairman Board of Directors Japan Institute of International Affairs Tokyo

Introduction

This volume represents the first tangible result of transnational co-operative research between and among ASEAN and Japanese scholars. The topic of ASEAN -Japan industrial co-operation is one of great and growing importance to both ASEAN and Japan. The Overview Papers in this volume arose from the recognition by both ASEAN and Japanese researchers that before meaningful policy-oriented studies on the multifarious facets of ASEAN-Japan industrial cooperation can be conducted, they must undertake a broad overview of the subject in order to develop a harmonized, if not common, conceptual framework and approach without which fruitful joint or co-operative research cannot proceed. The programming of the project reflects its dual function as a co-operative venture not only between ASEAN and Japanese researchers but, as importantly, among ASEAN researchers themselves. Meetings were held between the two groups to define the broad parameters of the project, and among the ASEAN researchers to synchronize their work effort. Five ASEAN-country papers were produced by the respective ASEAN-country research teams. In addition, they produced three thematic papers: "Trade Implications of Changing Industrial Structure in ASEAN and Japan", "Japan's Direct Investment in the ASEAN Countries", and "Technology Transfer from Japan to ASEAN". These eight papers formed the raw material from which the ASEAN Overview Paper was distilled, and finalized after discussions between ASEAN officials and researchers in May 1983 in Singapore. The ASEAN-country papers reflected the great diversity in industrial structures, historical experience, and national perspectives and pre-occupations of the ASEAN member countries as well as their growing communality of economic interest and views, especially as regards third-country relations. The ASEAN Overview Paper, however, concentrates only on those issues that are of common concern to all the A SEAN countries. It is divided into four chapters. Chapter 1 discusses industrial and related trends inJ a pan. Chapter 2 contains a similar discussion on ASEAN. Chapter 3 analyses ASEAN -Japan economic relations, focusing on issues which are relevant for industrial co-operation, such as trade, direct investment, technology transfer, and technical assistance. Chapter 4 draws certain policy implications of A SEAN-Japan relations on industrialization in ASEAN and Japan, on the basis of which policy recommendations are made and further areas of research studies proposed. The Japan Overview Paper deals with the same broad range of issues but from a

XVl

Introduction

Japanese perspective. However, while the ASEAN Overview Paper discusses the present situation and paints scenarios for ASEAN and Japan up to the 1990s as a backdrop for a free-ranging exploration of ideas and possibilities, the Japan Overview Paper is restricted to a structured survey and review of the Japanese literature in the field. From another angle, however, the scope of the Japan Overview Paper is far wider. While the ASEAN Overview Paper concentrates on the purely economic aspects of ASEAN-Japan industrial co-operation, the Japan Overview Paper devotes one of the two chapters to an explicit discussion of the non-economic context and such issues as, inter alia, Japanese public perceptions of ASEAN, ASEAN's political perceptions of Japan, the politics of ASEAN's economic cooperation, and the socio-political implications of ASEAN-Japan economic cooperation on the international scene, including their relations with the East Asian newly industrialized countries, China, and the evolving idea of a Pacific community. The greater emphasis of the Japan Overview Paper on non-economic factors and the international context, compared to the ASEAN Overview Paper, reflects the position of Japan vis-a-vis ASEAN. Japan is a global economic power. As the ASEAN Overview Paper recognizes, ASEAN is relatively less important to Japan than vice versa; or, to state the obverse, relations with the rest of the world are relatively more important to Japan than its relations with ASEAN while the reverse is true for ASEAN. Furthermore, having largely achieved its economic goals and attained a high level of economic development compared to ASEAN, it is understandable that Japan should show a greater interest in non-economic than economic issues compared to ASEAN. There also tends to be a difference in emphasis between the Japan and ASEAN Overview Papers on various specific issues. On the question of ASEAN's manufactured exports to the Japanese market, the Japan Overview Paper emphasizes that this ''amounted to US$1, 202.6 million in 1980, nearly tenfold from US$ 125.8 million in 1971, with the annual average rate of growth reaching as high as 28.5 per cent (1971-80). This was higher than the annual average growth rate of Japan's total imports" (p. 80). On the same issue, the ASEAN Overview Paper, on the other hand, chooses to emphasize that while '' ASEAN increased the share of manufactures in its total exports from 23.1 per cent in 1972/73 to 26.3 per cent in 1979/80 . . . the share of manufactures in its exports to Japan dropped from 9. 4 per cent in 1972/73 to 6.6 per cent in 1979/80" (p. 38). Similarly, on the issue of trade barriers protecting declining industries, the stress of the Japan Overview Paper is more on the difficulty of removing such barriers ''without some political cost" because "private interests are complexly intertwined, through various types of interest groups; with Japan's political decision-making process" (p. 115). The ASEAN Overview Paper, while recognizing that ' 'the elimination of barriers [may not be] politically feasible in the short term" , nevertheless stresses that "this should be explained, with perhaps indications when and how such may be effected" (p. 56). The Overview Papers were discussed at an ASEAN-JapanJoint Workshop on Industrial Co-operation in Singapore in August 1983. While noting the various

l ntroduction

XVll

differences in emphasis and presentational orientation between the two papers, the Workshop noted that there were in fact far larger areas of agreement between them. Furthermore, in many subject areas the two papers serve to complement one another. In particular, on the subject of further research, especially in economic areas, there was a remarkable confluence of views. After some discussion and readjustment of the proposed topics, the Workshop was able to recommend two topics for follow-up research under Phase II of the ASEAN-Japan Industrial Cooperation Project: namely, "Effective Mechanisms for the Enhancement of Technology and Skills in ASEAN" and "Industrial Restructuring and Adjustment for Japan-ASEAN Investment and Trade Expansion".

M.K. Chng and R. Hirono

PART ONE

ASEAN OVERVIEW

1

Industrial and Related Trends in Japan

Macro-Economic Aggregates

Gross Domestic Product (GDP) Between 1970 and 1980,Japan's real GDP registered an average annual growth of 5 per cent, which was much higher than the rates registered by the other developed countries (EPA 1982). For example, the average annual growth rate of the United States was 3.0 per cent, that of the United Kingdom 1.9 per cent, the Federal Republic of Germany 2.6 per cent, and Italy 3.0 per cent (World Bank 1982). Thus, in comparison, the Japanese economy grew much more rapidly. Within the industrial sector, the machinery industry inJ a pan grew the fastest with an average annual growth rate of 9.8 per cent. This was followed by the primary metal industry at 7.8 per cent; finance, insurance and real estate at 7.4 per cent; mining and manufacturing at 6.6 per cent; and transport and communications at 4.8 per cent (EPA 1982). Assuming that the rate of capital utilization in the various sectors that prevailed in 1979 holds true in the period 1980-2000, the real GDP ofJapan is expected to grow at an average annual rate of 4.2 per cent during this period (Case I, Table 1). Based on a higher expected rate of capital utilization (Case F, Table 1), the average annual growth rate ofJapan's real GDP is forecast to be 4.6 percent. On both these assumptions, the Japanese economy is expected to grow at a slightly lower but stable rate for the remaining period of this century. As in the seventies, the machinery industry is expected to be the major source of growth although its average annual rate of growth in the eighties and nineties is expected to drop to 6. 7 per cent (Case I) or 6.9 per cent (Case F). In contrast to the seventies, however, the average annual growth rate of the primary metal industry is expected to decline sharply from 7.8 per cent to 1.2 per cent (Case I) or 2.0 per cent (Case F). In other words, the importance of the primary metal industry as a source of growth in the decades of the eighties and nineties is expected to diminish sharply. This is also true of the chemical industry, the average annual growth rate of which is expected to fall by 50 per cent.

Population, Labour Supply, and Employment Structure During the last three decades (1950-80), Japan's population grew at an average

4

A SEAN Overview

TABLE 1 Japan: Rate of Capital Utilization (Actual and Expected)

Industry 1) 2) 3) 4) 5) 6) 7) 8) 9) 10)

Primary Industry Chemical Industry Primary Metal Industry Machinery Industry Other Manufatturing Industries Construction Electricity, Gas, and Water Finance, Insurance, and Real Estate Transport and Communications Services and Others

SouRCE:

1979 (Actual) (Case I)

Expected Rate Over The Planning Period (Case F)

%

%

100 84.0 77.3 86.7 94.1 89.0 89.0 89.0 89.0 89.0

100 88.5 87.5 . 88.2 95.6 91.8 91.8 91.8 91.8 91.8

Economic Planning Agency (EPA), Japan, Japan in the Year 2000, Technical Report of Long-Run Perspectives (Tokyo, August 1982), p. 22, Table 1-8.

annual rate of between 1.0 and 1.3 per cent. In 1950-60 it was 1.3 per cent, in 1960-70 it was 1.0 per cent, and in 1970-80 it was 1.2 per cent. In 1981,Japan's population was estimated at 117,719,800. This is expected to reach 128,119,000 by the year 2000. Japan currently faces the problem of an ageing population - that is, those in the older age groups as a proportion of the total population is on the rise. This has serious implications for labour supply. Between 1965 and 1971, Japan's working population increased at an average annual rate of 1.2 per cent. In 1970-85, however, the increase is estimated to be only 0.8 per cent per annum - that is, from 51.53 million in 1970 to 58.61 million in 1985 (JETRO 1975, p. 20). By the year 2000, the working population is estimated to reach 63.29 million - that is, the rate of increase between 1985 and 2000 is expected to decline further to 0. 5 per cent per annum (Table 2). With respect to the distribution of employment by major sectors, the primary sector has declined in importance as an absorber of labour, while both the secondary and tertiary sectors have increased in importance. In 1960, the primary sector absorbed 30.2 per cent, the secondary sector 28 per cent, and the tertiary sector 41.8 per cent of the total employed (Table 3). In 1970, the primary sector absorbed only 17.4 per cent, while the secondary and tertiary sectors increased their share of the employed to 35 and 4 7. 3 per cent respectively. By the year 2000, the share of labour in the primary sector is expected to decline further to 4. 8 per cent and that in the secondary sector to 32.5 per cent, while that in the tertiary sector is expected to increase to 62.7 per cent. By industry, employment in the textile, paper and pulp, chemical and primary metal industries will decline while that in the electrical machinery, construction,

5

Industrial and Related Trends inJapan

TABLE 2 Japan: Population Size and Supply of Labour, 1981-2015

Year

Population

Labour Supply

Year

Population

Labour Supply

1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998

117,719.8 118,431.4 119,119.9 119,733.8 120,301.2 120,838.3 12,354.1 121,855.3 122,347.7 122,834.2 123,323.5 123,818.1 124,324.8 124,846.4 125,393.3 125,933.3 126,491.5 127,049.5

5,646.6 5,700.4 5,754.1 5,807.9 5,861.7 5,913.1 5,964.7 6,016.1 6,067.7 6,119.1 6,154.2 6,189.3 6,224.3 6,259.4 6,294.4 6,301.4 6,308.4 6,315.2

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

127,595.9 128,199.0 128,605.8 127,046.0 129,430.7 129,753.6 130,007.6 130,192.8 130,309.3 130,359.3 130,346.7 130,275.7 130,153.8 129,990.0 129,792.9 129,570.7 129,332.3

6,322.2 6,329.1 6,326.8 6,324.5 6,322.2 6,319.9 6,317.6 6,302.6 6,287.6 6,272.5 6,257.5 6,242.5 6,218.8 6,195.2 6,171.5 6,147.8 6,124.1

SouRcE: Institute of Population Studies, Japan, New Estimo.te of Future Population (Ministry of Welfare, Tokyo, June 1981) as quoted in EPA, japan in the Year 2000, p. 15, Table 1-4. TABLE 3 Japan: Employment Structure, 1960, 1970, 1985, 2000

Employment Sector Primary Industry Secondary Industry Tertiary Industry

1960

%

13,400 30.2 12,420 28.0 18,540 41.8

1970

(Thousands of Workers)

%

8,860 17.4 17,910 35.0 24,080 47.3

1985

%

5,200 9.1 21,620 37.9 30,280 53.0

2000

%

3,010 20,600 39,690

4.8 32.5 62.7

SouRCE: Adapted from Japan External Trade Organization (JETRO), Japan's Industrial Structure- A Long Range Vision (Tokyo, June 1975), p. 23, Table 11-1-10; and EPA, japan in the Year 2000, p. 30, Table 1-10.

services, and food industries will increase. In fact, employment in the latter industries is expected to grow at an average annual rate of2 per cent or more, as opposed to the 0.8 per cent average annual increase in the total employed population. The share oflabour in the construction and services sectors will also expand, the former from 7. 7 to 9.9 per cent, and the latter from 18.4 to 23.5 per cent.

6

ASEAN Overview

Savings and Investments

The Gross National Savings of Japan (excluding net current transfers from abroad) grew from 29,402 billion yen in 1970 to 60,264.5 billion yen in 1977. As a percentage of gross national product (GNP) it was close to 40 per cent in 1970, and 32.4 per cent in 1977. Private capital formation (PCF) has always played an important role in stimulating the growth of the Japanese economy and is expected to increase more than threefold, at 1970 market prices, from 14.6 trillion yen in 1970 to 45.0 trillion yen in 1990- that is, an average annual growth rate of 5.8 per cent. However, as a proportion of Gross National Expenditure (GNE) in real terms, PCF is expected to fall from 20.1 per cent in 1970 to 18.1 per cent in 1990. The share of government capital formation in GNE in real terms, on the other hand, has tended to rise since 1970 and this trend is expected to continue until 1990. For example, the share of government fixed capital formation (GFCF) in GNE is expected to increase from 8.6 per cent in 1970 to 10.2 per cent in 1985, and further to 10.8 per cent in 1990 (Table 4). The average annual growth rate of G FCF, estimated at 7. 4 per cent between 1970 and 1980, is expected to increase to 8.4 per cent in 1980-85, before dropping to 7.1 per cent in 1985-90. In 1970, GFCF was 42.4 per cent ofPCF; in 1990 it will be 59.5 per cent. Thus, GFCF is expected to play an increasingly bigger role in stimulating the future growth of the Japanese economy. The pattern of PCF and GFCF growth is expected to undergo substantial changes in the future. While PCF is expected to continue to increase at a high rate in the areas of labour-saving and anti-pollution as well as in those related to personal consumption and government capital formation, it is likely to slow down in the basic industries sectors such as steel and petrochemicals because of difficulties in industrial location (JETRO 1975, p. 20). Within government investment, there is an expected shift away from the development of transportation and communication (such as roads, railways, harbours and ports) to the improvement of the living environment (for example, environmental sanitation, housing, public welfare and schools) in line with the objective of raising the quality of life of the Japanese people (JETRO 1975, p. 19). Exports and Imports

During the seventies, machineries were the major exports, followed by metals and textiles. In the eighties, the export of machineries and chemical products is expected to increase while the export of iron and steel and textiles is expected to drop drastically. In the case of the iron and steel industry, its decline is due to its massive energy consumption and location difficulties. Iron and steel, together with textiles, will also be expected to face increases in domestic labour costs and growing protect.ionism in importing countries. The export of machineries, particularly those incorporating highly sophisticated technology, such as electronic computers and industrial equipment with electronic devices, and systems products, is expected to increase because of Japan's increasing technological sophistication. Exports of machinery, plant and equipment will rise in line with the expected expansion of Japanese investment overseas. For similar reasons, the export of

;;-

~

."....~ ~

"' I> ~

TABLE 4 Japan: Gross National Expenditure at Constant Prices (In trillion yen at 1970 market prices)

~

~;;;·

""" ]"

1970

Gross National Expenditure Private Consumption Expenditure General Government Consumption Expenditure Government Fixed Capital Formation Private Capital Formation Private Housing Investment Private Inventory Investment Exports Imports SouRCE:

-

1980

1990

1985

Amount

%

Amount

%

Amount

%

Amount

%

72.5 37.0

100 51.0

135.8 70.9

100 52.2

185.9 98.3

100 52.7

349.0 134.1

100 53.9

5.9 6.2 14.6 4.7 3.1 8.7 7.7

8.1 8.6 20.1 6.5 4.3 12.0 10.6

9.9 12.7 26.3 9.6 3.4 19.2 16.2

7.3 9.4 19.4 7.1 2.5 14.1 11.9

12.4 19.0 34.8 13.7 3.6 27.6 33.5

6.7 10.2 18.7 7.4 1.9 14.8 12.6

15.3 26.8 45.0 19.4 3.8 39.1 34.5

6.1 10.8 18.1 7.8 1.5 15.7 13.9

Adapted from]ETRO,Japan's Industrial Strw:ture, p. 16, Table 11-1-3.

-....]

8

ASEAN Overview

petrochemicals, including plastics, which currently account for the major share of chemical exports, is expected to fall while the products of new chemical industries, which are energy-economical, knowledge-intensive and of high value-added, is expected to increase. It is also envisaged that the export of fine chemicals, such as drugs, dyestuffs and cosmetics, which are relatively low in energy consumption per unit value, and sophisticated textile products will rise. Japan's export structure will thus be more economical in the use of energy and resources, more knowledge based and with higher value-added. Such an export structure, which is much less likely to encounter trade barriers, will increasingly come to characterize trade among developed countries, with its greater emphasis on quality goods that involve non-price competition. While Japan is still behind the United States and the Federal Republic of Germany with respect to its international competitiveness in highly sophisticated machinery and chemical products, it is ahead of these countries in terms of labour productivity. The elasticity coefficient ofJapan's imports to GNP at constant prices has been extremely high during the sixties and seventies, but this coefficient is expected to decline during the eighties and nineties. This is because while japan's imports of manufactured goods- of high-class machinery and equipment from Europe and America, in line with the growing horizontal division oflabour among developed countries, as well as of textiles, sundry goods and low-grade machinery from developing countries as these latter industrialize - are expected to increase, Japan's imports of basic raw materials (particularly mineral fuels), which account for the major part of its imports, are likely to decline because of the expected shift of resource-using industries, such as those in petrochemicals, alumina, and iron and steel, to overseas locations that are closer to the sources of raw material, and because of energy and resource conservation by home-based industries. Industrial Structure of Japan

Table 5 shows the broad sectoral distribution of japan's GDP for the years 1960 and 1979. Table 6 shows the percentage distribution of manufacturing valueadded by industries for the years 1972, 1977, 1979 and 1980. As can be seen from Table 6, textile and textile products and wood and wood products have continued to decline in value-added shares as a result of the Japanese sectoral structural adjustment policy pursued when both sectors started losing their comparative advantage against lower cost-producing, less developed countries in the 1960s. Table 7 depicts the structural changes injapan's industry envisaged under the seven-year socio-economic development programme up to 1985. As shown, the share of primary industry in total output is expected to continue its significant decline up to 1985. The share of secondary industry, in particular Manufacturing, is expected to remain relatively stable up to 1985. Within Manufacturing, however, Machinery is expected to rise, while Chemicals, Metals and Others are expected to fall in relative importance. The share of the tertiary sector is expected to increase slightly from 1978 to 1985. From a slightly different angle, as shown in Table 8, there will be a continuing

9

Industrial and Related Trends in japan

TABLE 5 Sectoral Distribution of japanese GDP, 1960 and 1979

GDP (US$ million) Distribution ofGDP% Agriculture Industry Manufacturing* Services

1960

1979

43,060

974,040

13 45 34 42

5 42 30 53

• Manufacturing forms part of Industry, but its share of GDP is shown separately because it is typically the most dynamic part of the industrial sector. SouRCE: World Bank, World Development Report 1981 (Washington D.C., 1981).

TABLE 6 Structure of Manufacturing Value-added, 1972, 1977, 1979, 1980

ISIC 31 32 33 34 35 36 37 38 39

Industry

1972

1977

1979

1980*

Food, Beverage and Tobacco Textiles and Textile Products Wood and Wood Products Paper and Paper Products Chemicals Non-metallic Minerals Basic Metal Industry Metal Manufacturing Products Other Manufacturing Industries

8.9 8.4 4.3 7.5 14.6 5.0 9.0 40.7 1.6

10.0 7.4 4.0 7.9 14.5 5.0 8.4 41.1 1.7

9.3 7.1 4.1 7.8 15.2 5.1 10.2 39.6 1.6

9.2 6.3 3.6 7.7 15.3 5.0 10.3 41.2 1.5

Total Manufacturing

100

100

100

100

• Estimated; manufacturing establishments with over four employees. SouRcE: United Nations, Yearbook of Industrial Statistics, 1978 and 1980.

decline in the importance of industries engaged in the production of Basic Materials. A typical example of this is the energy-intensive aluminium refining industry which has declined largely because of the extremely high cost of energy that has come to prevail in japan. In the chemical industry, mass-produced basic chemical bulk products are also fast losing out in international competitiveness because of the high price of energy and raw materials.

A SEAN Overview

10 TABLE 7 Structural Changes of Japanese Industry under the Seven-year Socio-economic Development Programme•

Shares in% 1985/1978 (%)

Industry

1970

Primary Industry Secondary Industry Manufacturing Chemicals Metals Machinery Others Construction Tertiary Industry Electric Power, Gas & Water Supply Banking & Insurance Transportation, Communications Services

4.2 59.9 50.0 9.6 8.1 17.5 14.8 9.8 35.9 1.7 3.9 4.5 26.7

3.7 57.6 48.1 8.9 7.4 17.7 14.0 9.4 38.7 1.9 3.6 4.7 28.6

3.1 58.6 49.4 8.7 7.3 19.8 13.5 9.2 38.3 1.9 3.4 4.5 28.5

2.3 58.8 49.0 8.4 6.5 21.5 12.7 9.8 38.8 1.9 3.5 4.5 29.0

1.4 5.7 5.6 5.1 3.8 6.9 4.7 6.6 5.9 5.4 6.2 5.6 5.9

100.01

100.0

100.0

100.0

5.7

Total

1975

1978

1985

*Originally formulated in August 1979, and revised injanuary 1981. SouRCE: Japanese Economic Yearbook: Oriental Economist 1981182.

Rising in importance are the machinery and equipment-related Processing and Assembly Industries which have enjoyed expansion in export sales despite increasing trade friction and a depressed international market. This success is very much attached to the recent surge in Japanese overseas joint ventures and direct investments, of which more will be written in the later sections.

::;..

t [

" 2..

TABLE 8 Production Structure in "The Outlook For and Problems of japan's Industrial Structure in the '80s" (Based on 1975 prices in billion yen)

.,.~

a.

:;o

~ ~

Shares

Basic Materials Industries• Processing & Assembly Industriesb Life-related Industries< Construction Commerce Services Othersd Total

Shares

Shares

1990/1978

Shares

1970

in%

1975

in%

1978

in%

47.901

(17. 7)

54.643

( 16.4)

63.148

(16.5)

34.969 45.049 27.281 23.475 36.201 55.283

(12.9) (16. 7) (10.1) (8.7) (13.4) (20.5)

40.763 49.359 34.074 30.053 46.970 176.369

(12.3) (14.9) (10.3) (9.0) (14.1) (23.0)

52.463 55.625 40.583 35.955 49.579 86.053

270.160

(100.0)

332.231

(100.0)

383.406

1990

in%

(%)

105.607

(14. 7)

4.4

(13. 7) (14.5) (10.6) (9.4) (12.9) (22.4)

119.085 95.333 77.274 64.587 104.987 151.615

(16.6) (13.3) (10.8) (9.0) ( 14 .6) (21.1)

7.1 4.6 5.5 5.0 6.5 4.8

(100.0)

718.488

(100.0)

5.4

• mining chemicals, oil and coal products, ceramics and clays, iron and steel, non-ferrous metals, and metal products. b ordinary machinery, electric machinery, transport equipment, and precision machinery. c foodstuffs, textiles, paper and pulp, and miscellaneous manufacturing industries. d agriculture-forestry-fishery, electric power, gas & water supply, banking and insurance, real estate, transportation and communications. SouRcE: Ministry of International Trade and Industry (MITI), Japan, November 1980.

;;;·

';;-

"g-

"

2

Industrial and Related Trends in ASEAN*

Macro-Economic Aggregates The A SEAN economy represents a unique mixture of national economies at different stages of economic development based on different growth strategies. The range is extremely wide. At one end is the Singapore economy which is poor in natural resources, rich in skill endowments, highly industrialized and heavily export-oriented with an outward-looking development strategy. At the other end is the Indonesian economy which is rich in natural resources, poor in skill and technology, specializing in primary production mainly for the export market, with infant industries that cater for the domestic market based on an inward-looking strategy. Between these two extremes lie the economies of Malaysia, the Philippines, and Thailand in which export orientation in traditional commodities is gradually giving way to export orientation in modern manufactures, calling for significant structural changes in their manufacturing sectors. Thus, there are marked differences in the industrial and trade policies of the ASEAN countries. Economic Growth and Dynamism All the ASEAN countries, except Indonesia, were classified in 1979 by the World Bank as middle-income developing countries. As may be seen from Table 9, Singapore is the most advanced among them and may soon graduate to become a developed country. Indonesia's per capita income, which stood at US$500 in 1981, well above the South Asian level, had been growing at the rate of5.3 per cent per annum in the 1970s due mainly to oil exports. Indonesia's manufacturing sector is relatively weak, contributing to only one-seventh of its GDP, although it has been growing rapidly at the rate of 12 per cent per annum. Malaysia, with a per capita income ofUS$1, 728 in 1981, registered a per capita growth rate of 5.5 per cent per year during the seventies. Malaysia's impressive economic performance is attributable mainly to the vigorous export-oriented industrialization mounted in the 1970s, although discoveries of oil and natural gas have also contributed significantly to the country's economic growth. It is *This section is based on Mohamed Ariff, "Economic Trends in the ASEAN Region", mimeographed, April 1983.

A SEAN Overview

14 TABLE9 ASEAN Basic Economic Data

Area (square kilometres) INDONESIA 1970 1977 1978 1979 1980 1981 1982 MALAYSIA 1970 1977 1978 1979 1980 1981 1982 PHILIPPINES 1970 1977 1978 1979 1980 1981 1982 SINGAPORE 1970 1977 1978 1979 1980 1981 1982 THAILAND 1970 1977 1978 1979· 1980 1981 1982

GNP per Capita at current market prices (US$)

Population (million)

RealGDP Growth (4)

119.47 141.18 145.10 148.47 151.89

7.5 8.8 6.9 6.3 9.6 7.6 5

74 323 247 333 457 500

10.40 12.37 12.96 13.30 13.40 13.80 14.10

6.3 7.8 6.7 9.3 8.0 6.3 4.6

334 1,090 1,266 1,547 1, 737 1,728 1,862

16.85 44.42 45.50 46.58 48.40 49.53

4.3 6.9 6.7 6.0 5.4 4.8 3

190 475 531 638 723 756

2.07 2.33 2.35 2.38 2.41 2.44

13.7 7.9 8.6 9.3 10.2 9.9 6.0

916 2,928 3,473 3,840

36.37 44.04 45.10 46.14 47.17 48.13

6.9 7.2 10.1 6.1 5.8 7.6 4.5

1,904.345

330,434

300,000

616

4,4~4

542,373

SouRcE: Ministry of Finance, Malaysia, Economic Report 1982183.

180 437 511 590 705 725

Industrial and Related Trends in ASEAN

15

pertinent to note that manufacturing, which accounts for more than one-fifth of its GDP, has been growing by over 12 per cent a year. The Philippines and Thailand, which are at the lower end of the ranking of middle-income countries, had per capita incomes ofUS$756 and US$725 respectively in 1981, with per capita incomes growing at the rate of 3.6 and 5.3 per cent per year respectively in the 1970s. The Philippines and Thailand are vigorously industrializing, with manufacturing contributing about one-fourth of GDP in the Philippines and more than one-fifth of GDP in Thailand. It is of interest to note that manufacturing has been growing at an annual rate of 7 per cent in the Philippines, and 11 per cent in Thailand. Singapore attained a high per capita income of US$4-,454 in 1980 and a per capita income growth of nearly 7 per cent per year in the 1970s. Singapore has rapidly developed a host of manufacturing and a wide range of servicing activities to replace the entrepot trade on which she was formerly very reliant. Manufacturing and services, both largely export-oriented, contribute 27 and 67 per cent of Singapore's GDP respectively. It is significant that Singapore's per capita income is almost on par with that of Spain or Ireland, and not very far below that ofltaly. It appears that if recent trends continue, Singapore may achieve a higher per capita income than New Zealand by 1985. The economic dynamism exhibited by the ASEAN countries may largely be ascribed to significant progress in the agricultural sector, high ratios of saving to GDP, openness to foreign trade and investment, and market orientation of economic activities. The ratio of exports to GNP in 1980 was 229 per cent for Singapore (indicating the importance of re-exports), 65 per cent for Malaysia, and 35 per cent for Indonesia (mainly due to oil exports). This ratio was in the range of 20-25 per cent for the Philippines and Thailand in 1980. The fast growth ofGDP in the ASEAN countries has been largely export-led. It was no accident that the Philippines and Malaysia in the 1970s had export growth rates that were as high as oil-rich Indonesia's 6.5 percent. It is also noteworthy that the share of manufactures in total exports increased from 6 to 21 per cent in Malaysia, and from 4- to 34 per cent in the Philippines, between 1960 and 1978. Thailand achieved a much faster growth rate of 12 per cent per year for its exports, with the share of manufactures in total exports rising from 2 to 25 per cent during the same period. In Singapore, the corresponding export growth rate was in the order of 11 per cent per year, and the corresponding share of manufactured exports in total exports (including re-exports) increased from 27 to 46 per cent. Indonesia, with a population of 152 million in 1980, had three times as many people as the Philippines or Thailand, and eleven times as many as Malaysia. The last, with a population of 14 million, has six times as many people as Singapore. The ASEAN countries have successfully reduced the rate of population growth through family planning and health care. In Indonesia, Malaysia, the Philippines and Thailand, the population growth rates vary between 2.1 and 2. 7 per cent per annum, while in Singapore, the growth rate is as low as 1.2 per cent per year.

Output and Employment The annual growth rate of total output between 1976 and 1979 in the ASEAN

16

A SEAN Overview

countries averaged between a high of8.6 per cent for Singapore to a low of6.5 per cent for the Philippines. Since 1979, growth rates have shown a declining trend in almost all the ASEAN countries. In Indonesia, real GDP registered a growth of7 .6 per cent in 1981 compared to 9.6 per cent achieved in 1980. This growth rate further declined to about 5 per cent in 1982. In the Philippines, real output growth continued its downward trend to 5.4 percent in 1980 and 4.8 per cent in 1981. The estimate for 1982 put the growth rate at only 3 per cent. In Malaysia, the growth of real GDP began to slow down from 9.3 per cent in 1979 to 8.0 percent in 1980, and 6.3 per cent in 1981, while the growth of real GDP was measured at only 4.6 per cent in 1982. Singapore, too, experienced a slow-down in the growth of real GDP which decelerated from 10.2 per cent in 1980 to 9. 9 per cent in 1981. The estimate for Singapore in 1982 put the growth rate of real GDP at 6 per cent. Thailand appears to be an exception in this respect as its real GDP continued to grow at a faster rate of 7. 6 per cent in 1981, compared with 5. 8 per cent in 1980 and 6.1 per cent in 1979. However, the growth of output decelerated to 4. 5 per cent in 1982. Indonesia's economic fortunes are closely bound to the primary sector, namely agriculture, forestry, fishing, and mining, which together contribute two-fifths of its GDP. Paddy production has been increasing steadily at the rate of5 per cent per year since 1975 as a result of the Green Revolution. The rice crop increased to 20 million tons in 1980, a rise of more than 50 per cent over the production in 1970. The output of maize has been increasing at about the same rate, while coffee, tea, and sugar have registered output growth of nearly 8 per cent a year. The output of palm-oil has grown at an annual rate of 10 per cent, although copra and rubber experienced only a 3 per cent output increase per year. Timber output doubled between 1971 and 1978, but has not grown in recent years. The output of oil reached a peak of615 million barrels per day (b/d) in 1979 and then declined to 577 million b/d in 1980. There are indications that oil output has registered modest increases in recent times. The growth of manufacturing output has been impressive; the real growth which averaged at 10 per cent in 1978 and 1979 accelerated to 21 per cent in 1980, although it subsequently slowed down to 11 per cent in 1981. Agricultural output is estimated to have grown by only 3.5 per cent in 1982, compared to 5 per cent in 1981 mainly because of poor weather conditions at home and depressed demand conditions abroad. The growth of manufacturing output in Indonesia was estimated at 9 per cent for 1982. In Malaysia, agricultural output has been growing more slowly than real GDP, while mining output has been falling in recent years. Between 1974 and 1980, the output of agriculture, livestock, forestry, and fishing increased at the annual rate of less than 4 per cent; in 1981 it grew by 5.3 per cent but subsequently decelerated to less than 2 per cent in 1982. Output oflogs and timber has been falling as a result of the forest conservation policy. Depressed prices have also led to the sluggish expansion of output of rubber and pepper. Palm-oil production, however, has been growing rapidly and in 1982 registered an annual growth of 13.5 per cent compared to 9 per cent in 1981. Cocoa output increased by 12.2 per cent in 1982 after a surging growth rate of28.6 per cent in 1981. Output of oil fell by more than 2 per cent in 1980 and by about 9 per cent in 1981. This, however, was reversed in 1982 when oil output increased by about 15 per cent. Tin output has been falling con-

Industrial and Related Trends in A SEAN

17

tinuously partly in response to export controls imposed by the International Tin Council and partly due to the depletion of known reserves and rising production costs. The manufacturing sector, which provided the main impetus to Malaysia's economic growth during the period 1976-80, grew by only 4 per cent in 1981, which compares poorly with the 9 per cent growth in 1980. The estimate for 1982 was an even less impressive growth rate of 3.5 per cent. The Philippines has been suffering from reduced growth rates for both industry and agriculture since 1980. The growth of agricultural output decelerated from 4.9 per cent in 1980 to 4.3 per cent in 1981 because of unfavourable weather conditions, natural calamities, and depressed demand. Industrial output rose by 5 per cent in 1980, compared with the more than 8 per cent annual rate of growth for the period 197 5-80. Most industries in the Philippines were affected by the high cost of energy, rising wages, and monetary stringency since 1980. The slowing down of industrial growth in the Philippines appears to be a continuation of the trend that began with the first oil crisis. With the recent reductions in oil prices, one may expect the industrial sector to gather momentum once again. The prospects for the Philippine industrial sector also look brighter in view of the current structural adjustment policy aimed at improving industrial efficiency and competitiveness. In Singapore, the share of manufacturing in GDP increased from 20 per cent in 1970 to 24 per cent in 1980, with manufacturing output growing at the rate of 11 per cent a year. Singapore has been successfully restructuring its industries. Thus, labour-intensive activities, such as textiles and the assembly of electronic products, have given way to technoiogy- and skill-intensive industries such as ship-building and the manufacture of precision instruments. The high-wage policy adopted by the government in recent years was designed to discourage the inefficient use of labour and to encourage development of high value-added activities. Prolonged world recession and increasing competition from other developing countries have led to a deceleration in the growth of manufacturing output in Singapore. Entrepot trade is still significant although its relative importance has declined in recent years. Singapore has been emerging as an important financial centre in Southeast Asia. In this connection, the rapid development of the Asian dollar market in Singapore deserves special mention. In Thailand, the fairly strong economic performance in recent years was due to high rates of output growth in the agricultural and agro-based industrial sectors. Agricultural production, which contributes to nearly 25 per cent of real GDP, increased by 7.5 per cent in 1981, compared to 1.9 per cent in 1980, mainly because of favourable weather conditions. However, the decline in rubber output was due to lower prices and security problems, while fishery output fell because of higher costs and marketing problems, and forestry output decreased because of poor yields. The Thai manufacturing sector, which accounted for about 21 per cent of real GDP, grew by more than 10 per cent in 1981 compared to 4.8 per cent in 1980, with agro-based industries leading output expansion. The annual growth of the construction sector slowed down from nearly 14 per cent in 1980 to 6 per cent in 1981, mainly because of tight liquidity and high interest rates. The estimates for 1982 suggested continued deceleration in most sectors. The growth of the industrial sector in the 1970s was largely export-led, with textiles, clothing and inte-

18

ASEAN Overview

grated circuits having made particularly important gains. While world recession has neutralized to some extent the dynamism of the export-oriented Thai manufacturing sector, the 8. 7 per cent devaluation ofthe baht in 1981 has contributed to the international competitiveness of Thai exports. According to official records, unemployment in 1978 was 2.5 per cent in Indonesia, 5. 6 per cent in Malaysia, 5. 2 per cent in the Philippines, 5. 4 per cent in Thailand, and 3.4 per cent in Singapore. With the exception of Singapore, however, these unemployment figures have to be taken with extreme caution, since much of the rural unemployment escapes registration, and underemployment and disguised unemployment tend to be grossly underestimated. About two-thirds of the Indonesian labour force is engaged in agriculture. Probably as much as two-thirds of the rural labour force is underemployed. In Malaysia, the distribution of labour has been shifting in favour of industrial and service sectors away from agriculture, forestry, and fishing. There has been a drift of labour from the rubber estates, causing an acute shortage in that sector. It is significant to note that employment in the Malaysian manufacturing sector was growing at a rate of about 8 per cent per year in the seventies. Labour shortages have been reported in construction activities and in the free trade zones. Total employment is estimated to have increased in Malaysia by 2.4 per cent in 1982, compared to 2.8 per cent in 1981. In the Philippines, unemployment declined during the 1970s; and, in 1979, 4. 7 per cent of the labour force was officially unemployed. The unemployment rate increased to 5. 4 per cent in 1980 and it appears that the situation worsened in 1981 and 1982 under recessionary influences. Thailand, with about 72 per cent of its labour force in the farming sector, had an unemployment rate of 5. 7 per cent in 1980. The unemployment rate probably increased in 1981 and 1982 despite absolute increases in the number of employed. The demand for labour in Singapore rose so rapidly in the 1970s that by 1980 foreign labour accounted for more than 10 per cent of its labour force. However, since 1980, employment growth has decelerated from a previous annual rate of6.5 per cent to about 5 per cent, partly as a result of the new high -wage policy.

External Trade and Finance As mentioned earlier, the ASEAN economies are characterized by their openness. Trade and financial flows, accordingly, play an important role. Indonesia's exports have been rising at a fast rate since 1976, owing to sharp increases in the price of oil, and Indonesia consequently has been enjoying growing trade surpluses. In 1981, however, its trade surplus was reduced by 19 per cent to US$8, 988 million, in contrast to the sharp increase of 32 per cent in 1980. Indonesia's total exports increased marginally by 1.6 per cent, compared to a 40.5 per cent increase registered in 1980, owing to the sharp drop in the prices of Indonesian exports. In fact, the value of non-oil exports fell by nearly 30 per cent in 1981, while the value of oil and natural gas exports increased by 12.6 per cent. However, imports increased by 22.5 per cent in 1981. Consequently, Indonesia incurred a current account deficit of US$1, 168 million and an overall payments deficit of US$298 million in 1981, compared to surpluses of US$2.9 billion and US$2.2 billion

19

Industrial and Related Trends in ASEAN

respectively in 1980. The total trade surplus in 1982 was estimated to have declined further by 5.3 per cent because of a fast 12 per cent growth in imports and only a slow 5 per cent rate of growth in exports. The overall balance of payments deficit is estimated to have increased by 299 per cent in 1982.

TABLE10 ASEAN: Data Relating to International Finance

INDONESIA 1970 1977 1978 1979 1980 1981 1982< MALAYSIA 1970 1977 1978 1979 1980 1981 1982c PHILIPPINES 1970 1977 1978 1979 1980 1981 1982
.:

Imports from Japan

SouRcE: U.N., Foreign Trade Statistics of Asia and the Pacific, various issues.

Japan's Share

Percentage Increase from 1972/73 to 1979/80

~

80,309 10,983 142 21,861 3,000

190,203 4,630 88 1,573 3,200

6001> 33

209,140

12,740

635,416 152,100 47,355 26,500 27,633

124,369 57,320 9,932

132,000

238,994

15,680

1,005,299

391,315

135,573

as at the end of December 1979. completed.

SouRCE: Japan External Trade Organization, Economic Cooperation rif]apan, 1980 (in japanese). U"1

(.11

1'.:1

TABLE 24 Japanese Technical Co-operation to ASEAN: Acceptance of Trainees and Dispatch of Experts*

Organization

Trainees and Students Accepted

Agriculture, Administration, Transportation, Social Welfare, Light Industry & Fisheries Management, Techniques & Administration Machinery, Metal & Electric Industry Industrial Machinery, Textiles, Automobiles, Household Electric Appliances & Lumber & Metal Products Agriculture, Construction & Engineering Works Textiles, Automobiles, Shipbuilding and Chemicals Publishing Fishery Processing, Fishing Boat Engineers, Refrigeration and Fishers Agriculture, Construction, Transportation, Social Welfare Education

Thailand

Singapore

Indonesia

Philippines

Malaysia

3,356

785

3,373

2,327

1,248

373 15

56 11

199 11

301 7

4

1,656

808

2,046

588

1,179

OISCA

20

25

33

99

359

ILO ACCU

65 13

178

62 16

11 12

25 12

JICA APO UNIDO

AOTS

7

OECF

JICA

13

2,018

185

3,084

1,556

574

::... ~ :..: ::;:: 0

"'~

;;· "'

~

:...

f>i ::.: ~

'i;
. ~ ·;; ill. 'il.. = "0 ..s" :.cc.. .....-= ;;;= ~

·6 .-I' /'

/

I I I I I I

/

I

./

I

."' 01

t: &. .!

~

.

i.l

(,)

~"

-..J

FIGURE 6B Structural Change in ASEAN (excluding Fuel and Food)

co

Coefficients of structural change in GDP

20

10

...... .,... ···""'···-'

.

/

... ,...···,.,., .,...·· Imports (ex. Fuel)

···

... ...-··

/

..,. ·""

//

30·-. ... .__

/

25

·-..... .............

20

~......

•5\

.............

···-

···-...........

................

'''

\

":·.V·.

----~~

.,.,

:'

\

....

--

··.

'·· ......_

·, .....:--... ··· .................

.: ;

' \

···-

-... -.....

" I

/

..,;···

:5

~

''·,· . .> '··.' ·. . . . -.:~\ ...,

''

··..

·

··..

,

·..

_--··.,··.,··. '-...._

'··

.,.. 15 _.,.."'::.. ·""' 2

Exports

(ex. Fuel & Food)

Indonesia --------Philippines

···-..... .........

Thailand ···-···-···-···Singapore

SouRcE: Table 9

·-·-·-·-·-·-Malaysia Labour

"" f

§

~·

japan-ASEAN Industrial Co-operation: Economic Issues

79

distribution depends on real labour productivity and terms of trade among sectors. We can confirm the relative rate of changes in the structure of GDP, employment, imports and exports by calculating changes in each share. Judging from Figures 6A and 6B, Singapore has the largest coefficient among the ASEAN countries. The results are 59.4 in Singapore, 54.0 in Indonesia, 40.0 in Malaysia, 38.0 in the Philippines, and 32.0 in Thailand. While Singapore has achieved the most rapid structural change as measured by changes in its import-export structure, Indonesia and Malaysia have achieved a similar type of structural change in their economic development while depending more heavily on their natural resourcebased industrialization of the 1970s. In the Philippines and Thailand, a different pattern of structural change can be observed, in which the changes are smaller than those found in the other ASEAN countries. In the process of economic development, the ASEAN countries have maintained strong economic relations with Japan through. foreign trade and investment. In 1981, these countries exported US$17 .9 billion to Japan, or 26.8 per cent of their total exports, and imported US$15. 2 billion, or 21.2 per cent of their total imports. Japan is the largest trading partner of the ASEAN countries. Japanese investment also forms a large share of the total foreign investment in each member country. Japan is the largest foreign investor in Indonesia, with 35.7 per cent of the total, the second largest in Malaysia with 20.9 per cent, the second largest in the Philippines with 19.7 per cent, the fourth largest in Singapore with 15.8 per cent, and the largest in Thailand with 32.8 per cent.

Japan's Trade with the ASEAN Countries Studies have been done from several points of view on a wide range of subjects including the balance oftrade, trade policies inJ apan and ASEAN, and analyses of trade in natural resources, and so forth. In this section, two topics will be discussed: 1) the general characteristics of trade relations in which exports and imports betweenJapan and ASEAN will be analysed; and 2) the balance of trade between Japan and the ASEAN countries in which intra-ASEAN trade will be examined.

General Characteristics of the Trade between Japan and ASEAN Changes in the types of goods traded between Japan and the ASEAN countries since the 1960s are a reflection of economic growth and structural changes on both sides. Japan has long been a major importer of A SEAN's natural resources, and in 1962 ASEAN's share of Japan's total imports of raw materials was 21.6 per cent (Katano 1977). In 1980 the ratio was 19.7 per cent. During the last twenty years, there has been little change in this share. The industrialization of the ASEAN countries as a whole has depended mostly on industries geared to produce substitutes for imported goods so that manufacturing industries in ASEAN have been oriented to their domestic markets rather than to exports (Hirata 1973, Suzuki 1974, Sakurai 1975). MostJapanese exports to ASEAN have been manufactured products. In the early 1960s, Japan's main manufactured exports were consumption goods; since then Japanese exports have shifted to materials for consumption goods, and capital goods such as machinery. These changes in the

80

japan Overview

composition of Japanese exports to ASEAN have corresponded to the import substitution policies of the A SEAN countries. Instances of export-oriented industrialization were certainly observed in Singapore. There, the domestic market was so small that from the early stages of its industrialization, Singapore adopted an export-oriented development policy, and provided various incentives for more efficient allocation of labour and capital in its export-oriented industries (Hirano 1967, 1969; Konoshita 1977). Indonesia, Malaysia, the Philippines, and Thailand adopted an import-substitution type of industrial development policy and so the composition of imports changed greatly in the 1960s. The common characteristics of the change in their imports were as follows: 1) the share of consumption goods decreased, 2) materials for consumption increased and 3) capital goods also increased (Suzuki 1974, Sakurai 1975). The first two characteristics represent the process of import-substitution itself, while the third is a feature that corresponds to domestic fixed investment for import-substitution. Since the first half of the 1970s, the composition of ASEAN imports has remained more or less unchanged, indicating that the member countries have as a whole generally achieved importsubstitution in consumption and labour-intensive goods (Murakami 1981). In the second half of the 1970s, the ASEAN countries began to export some manufactured goods to Japan. These amounted to US$1, 202.6 million in 1980, nearly tenfold from US$125.8 million in 1971, with the annual average rate of growth reaching as high as 28.5 per cent (1971-80). This was higher than the annual average growth rate of Japan's total imports, excluding fuels and foods, which was 24.8 per cent for the same period. However, the annual average growth rate of Japan's manufactured imports from all the developing countries was 33.9 per cent between 1971 and 1980. This higher growth rate was mainly due to high imports from the NICs in Asia, such as the Republic of Korea, Taiwan, Hong Kong, and Singapore. Judging from the performance of the A SEAN economies since the 1960s, they have had a strong potential in expanding labour-intensive manufactured exports. This calls for a number of measures to be developed and implemented both in the A SEAN countries and in Japan (Sekiguchi 1981). The Balance

of Trade between Japan and ASEAN

The balance of trade in the ASEAN countries has been related to their industrialization policies. Tables 1,.2, 3, and 4 are matrixes of trade and the balance of trade among the ASEAN countries, Japan and the United States in 1972 and 1981. In 1981 , Japan's trade with the A SEAN countries as a whole recorded a deficit of US$2, 779 million, which resulted mainly from crude oil payments to Indonesia. Japan was in a surplus position with respect to the Philippines (US$647 million), Singapore (US$2,330 million), and Thailand (US$1,269 million), and was in a deficit position in relation to Malaysia (US$54 million). The present trade balance between Japan and the ASEAN countries is different from the situation that prevailed in 1972. In that year, Japan's trade recorded a surplus with respect to ASEAN as a whole, although it had deficits with Indonesia and Malaysia. The main reason for the change in the trade balance between Japan and ASEAN from a surplus to a deficit position was the price rise in crude oil in the 1970s. The deficit

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TABLE 1 ASEAN Trade Matrix, 1972 (In million US$ and %)

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Indonesia 1 Indonesia

-

2 Malaysia 16 ( 1.0) ( 1.0)

3 Philippines

4 Singapore

6 A SEAN

7 USA

8 Japan

9 Other

10 Total

3 ( 0.2) ( 0.2)

176 (11.4) ( 5.4)

0 ( 0.0) ( 0.0)

195 (12.6) ( 1. 7)

231 (14.9) ( 0.4)

746 (48.2) ( 3.3)

376 (24.3) ( 0.1)

1,548 ( 100) ( 0.4)

27 ( 1.6) ( 2.0)

400 (23.3) (12.2)

16 ( 0.9) ( 1.1)

456 (26.5) ( 3.9)

238 (13.9) ( 0.4)

295 (17.2) ( 1.3)

729 (42.4) ( 0.3)

1,718 ( 100) ( 0.5)

8 ( 0. 7) ( 0.2)

2 ( 0.2) ( 0.1)

15 ( 1.4) ( 0.1)

434 (39.3) ( 0.8)

358 (32 .4) ( 1.6)

298 (27.0) ( 0.1)

1,105 ( 100) ( 0.3)

76 ( 3.5) ( 5.3)

614 (28.2) ( 5.3)

337 (15.5) ( 0.6)

139 ( 6.4) ( 0.6)

1,091

(50.0) ( 0.4)

2,181 ( 100) ( 0.6)

211 (19.5) ( 1.8)

136 ( 12. 6) ( 0.3)

224 (20. 7) ( 1.0)

510 (47 .2) ( 0.2)

1,081 ( 100) ( 0.3)

1,491 (19.5) (12.9)

1,376 (18.0) ( 2.6)

1'762 (23.1) ( 7.7)

3,004 (39.4) ( 1.0)

7,633 ( 100) ( 2.0)

2 Malaysia

13 ( 0.8) ( 0.9)

3 Philippines

4 ( 0.4) ( 0.3)

1 ( 0.1) ( 0.1)

4 Singapore

71 ( 3.3) ( 5.0)

453 (20.8) (29.2)

14 ( 0.6) ( 1.1)

5 Thailand

35 ( 3.2) ( 2.5)

54 ( 5.0) ( 3.5)

28 ( 2.6) ( 2.1)

94 ( 8. 7) ( 2.9)

6 ASEAN

123 ( 1.6) ( 8. 7)

524 ( 6.9) (33. 7)

72 ( 0.9) ( 5.4)

678 ( 8.9) (20. 7)

-

5 Thailand

-

-

94 ( 1.2) ( 6.5)

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TABLE 1 (cont'd) ASEAN Trade Matrix, 1972 (In million US$ and %)

Indonesia

2 Malaysia

3 Philippines

4 Singapore

5 Thailand

6 A SEAN 1,358 ( 2.7) ( 11. 7)

7 USA

8 Japan

9 Other

10 Total

43,472 (87.3) (15.1)

49,795 ( 100) (13.2)

307 ( 0.6) (21.8)

130 ( 0.3) ( 8.4)

366 ( 0. 7) (27 .6)

385 ( 0.8) (11.7~

170 ( 0.3) (lLB)

8 Japan

616 ( 2.1) (43.8)

264 ( 0.9) (17.0)

458 ( 1.6) (39.6)

706 ( 2.5) (21.5)

523 ( 1.8) (36.3)

2,567 ( 9.0) (22. 2)

8,981 (31.3) (16. 7)

-

17' 109 (59.7) ( 5.9)

28,657 ( 100) ( 7 .6)

9 Other

361 ( 0,1) (25. 7)

635 ( 0.2) (40.9)

429 ( 0.1) (32 .4)

1,512 ( 0.5) ( 46.1)

652 ( 0.2) (45.3)

6,156 ( 2.1) (53.2)

43,533 (15.0) (80.8)

16,051 ( 5.5) (70.5)

224,175 (77 .3) (77 .9)

289,915 ( 100) (77.1)

10 Total

1,407 ( 0.4) ( 100)

1,553 ( 0.4) ( 100)

1,325 ( 0.4) ( 100)

3,281 ( 0.9) ( 100)

1,439 ( 0.4) ( 100)

11,5 72 ( 3.1) ( 100)

53,890 (14.3) ( 100)

22,778 ( 6.1) ( 100)

287,760 (76.5) ( 100)

376,000 ( 100) ( 100)

7 USA

-

4,965 (10.0) (21.8)

SouRCE: International Monetary Fund (IMF), Direction of Trade Statistics.

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TABLE 2 ASEAN Trade Balance Matrix, 1972 (In million US$)

2 Malaysia

3 Philippines - 1

2 Malaysia 3 Philippines

-3

4 Singapore

5 Thailand

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6 A SEAN

7 USA

8 Japan

9 Other

10 Total

i ~ i ";;:

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105

-35

72

-76

130

15

141

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-53

-38

-68

108

31

94

165



-26

-57

68

- 100

- 131

-220

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1)

-64

-98

-567

-421

- 1,100

-34

-299

- 142

-358

-805

-3,152

-3,939

-61

-4,095

1,058

5,879

-105

53

35

38

26

-72

68

57

64

76

-108

-68

48

34

8 Japan

-130

-31

100

567

299

805

9 Other

-15

-94

141

421

142

3,152

61

10 Total

- 141

-165

220

1,100

358

3,939

4,095

4 Singapore 5 Thailand 6 ASEAN 7 USA

-5,879

SouRcE: Calculated from Table 1.

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TABLE 3 ASEAN Trade Matrix, 1981 (In million US$ and %)

Indonesia

2 Malaysia

3 Philippines

4 Singapore

5 Thailand

6 ASEAN

7 USA

8 Japan

9 Other

10 Total

1 Indonesia

-

60 ( 0.3) ( 0.5)

411 ( 1.8) ( 4.6)

2,177 ( 9.8) ( 7.9)

35 ( 0.2) ( 0.3)

2,683 (12.1) ( 3. 7)

4,084 (18.3) ( 1.5)

10,546 (47.4) ( 7.4)

4,947 (22. 2) ( 0.4)

22,260 ( 100) ( 1.2)

2 Malaysia

58 ( 0.5) ( 0.4)

-

179 ( 1.6) ( 2.0)

2,652 (23. 7) ( 9.6)

192 ( 1. 7) ( 1.9)

3,081 (27 .5) ( 9.3)

1,166 (10.4) ( 0.4)

2,470 (22.1) ( 1. 7)

4,481 (40.0) ( 0.3)

11,198 ( 100) ( 0.1)

3 Philippines

204 ( 3.5) ( 1.5)

104 ( 1.8) ( 0.9)

-

125 ( 2.2) ( 0.5)

22 ( 0.4) ( 0.2)

455 ( 7.9) ( 0.6)

1,744 (30.4) ( 0.6)

1,277 (22.2) ( 0.9)

2,277 (39.6) ( 0.2)

5,756 ( 100) ( 0.3)

4 Singapore

1,243 ( 5.9) ( 9.4)

3,269 (15.6) (28.2)

274 ( 1.3) ( 3.1)

-

883 ( 4.2) ( 8.5)

5,669 (27.0) ( 7.9)

2,770 (13.0) ( 1.0)

2,124 ( 10.1) ( 1.4)

10,563 (50.4) ( 0.8)

20,970 ( 100) ( 1.1)

5 Thailand

114 ( 1.7) ( 0.9)

345 ( 5.1) ( 3.0)

17 ( 0.3) ( 0.2)

492 ( 7.3) ( 1.8)

-

968 (14.3) ( 1.4)

910 (13.4) ( 0.3)

974 (14.4) ( 0.7)

2,852 (42.0) ( 0.2)

6,784 ( 100) ( 0.4)

6 ASEAN

1,619 ( 2.4) (12.2)

3,778 ( 5.6) (32.6)

881 ( 1.3) ( 9.9)

5,446 ( 8.1) (19.8)

1,132 ( 1. 7) (11.0)

12,856 (19.2) (18.0)

10,677 (19.2) ( 3.9)

17,931 (26.8) (12.6)

25,120 (37 .5) ( 1.9)

66,968 ( 100) ( 3.7)

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4 7 USA

8 Japan

9 Other

10 Total

1,302 ( 0.6) ( 9.8)

1,537 ( 0.7)

8 1,799 J.8) (1 2.3)

(13.3)

1,787 ( 0.8) (20.2)

3,003 ( 1.3) (10.9)

1,170 ( 0.5) (11.3)

4,115 ( 2. 7) (31.0)

2,416 ( 1.6) (20.9)

1,924 ( 1.3) (21. 7)

4,454 ( 2.9) (16.2)

2,243 ( 1.5) (21. 7)

15 J52

6,236 ( 0.5) (47.0)

3,850 ( 0.3) (33.2)

4,272 ( 0.3) (48.2)

14,668 ( 1.1) (53.2)

5,785 ( 0.4) (56.0)

34 &11 ,p-.5) (4j8.6 )

13,272 ( 0. 7) ( 100)

11,581 ( 0.6) ( 100)

8,864 ( 0.5) ( 100)

27,571 ( 1.5)

10,330 ( 0.6)

( 100)

( 100)

71 &18 9 > 00)

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21,832 ( 9.3) (15.3)

203,116 (86.9) (15.1)

233,738 ( 100) ( 12.8)

38,883 (25. 7) (14.2)

-

97,465 (64.3) ( 7.2)

151,500 ( 100) ( 8.3)

223,791 (16.2) (81.9)

103,11 4 ( 7 .5) (72.2)

1,018, 862 (73.8) (75.8)

1,380,194 ( I 0.0) (75.3)

273,351 (14.9) ( 100)

142,868 ( 7.8) ( 100)

1,344, 563 (73.4) ( 100)

1,832,400 ( 100) ( tOO)

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Thailand A B

A

B

2,040 192 288 170 294 252 170 258 101 315

3,198

165 63 2,923 60 127 111 312

393 79 72 19 65 33 34 24 24 43

291.7 46.4 126.3 4.1 28.9

6.7 4.7 11.3 43.5 8.8 25.0

239 94 133 166 519 80 383

19.6 11.5

6.8 29.7 18.4

~

Total

118 608 125 417 913 163 243 239 371

50 219 18 134

17.2 56.4 12.1 124.5

17 4 26 30 130 17 80

0.8

27

5.5

5

0.7

94

18

23

5.6

77

33

3.0

156

44

536

614.9

1,055

735

396.4

3,904

7,022

• Approved total outstanding as at end of March 1980, in million US$. A = number of investment projects. B = amount of investment.

3

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0.5

-

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936.2

1.1