National economy as a driving force behind foreign policy of South-East Asian countries
28.10.2016, 11:58

УДК 327:94


У статті йдеться про інтравертну специфіку зовнішньої політики східно-азійських країн, що відображає особливості їхніх внутрішньо- та зовнішньоекономічних стратегій. Робиться висновок про те, що політичний потенціал країн цього регіону забезпечується раціонально вибудованою політикою економічної експансії. Така політика можлива завдяки використанню інструментів державного регулювання національної економіки як єдиного цілого.

Ключові слова: інтравертна політика, експансивна політика, специфіка державного регулювання, національні економічні стратегії.

Many Eastern European researchers and experts on South-Eastern Asia usually view countries from this region as more inward oriented, rather than focused on developing their foreign policy. This is seen as the result of the same cultural upbringing, which in the past guided some countries, like <st1:place w:st="on"><st1:country-region w:st="on">Japan</st1:country-region></st1:place>, toward isolationism.

Although it may have been the case many years ago, nowadays countries from this region are actively engaged in global society - their foreign policy stance is more important than ever. But none the less their past had a noticeable effect on how they approach international politics. This specialized approach to foreign policy making can only be described as "Nation first". At the core of it are national identity and national economy. Formation of the foreign policy is preceded by the national economic development plan and the policy forms a tool that will benefit further national development.

The main principle of forming national economic policy is heavily reliant on the nation as the main guiding force of the economic development, not enterprise. Governments of these countries choose an active role in the process of economic modernization aimed at entrenching and expanding national positions on international arena, increasing its economic and political competitiveness.

Such interventionist nature of these governments was caused by global liberalization of world markets and diminishing role of government in developed nations. Countries like <st1:country-region w:st="on">Japan</st1:country-region>, <st1:country-region w:st="on">South Korea</st1:country-region>, and <st1:place w:st="on"><st1:country-region w:st="on">Taiwan</st1:country-region></st1:place> use strong governments that apply political force to help national enterprises in the foreign markets to their competitive advantage. Countries also apply allowable barriers and incentives in order to guide foreign investors to struggling sectors of economy and to prevent pressure on other, where national enterprises struggle.

Many countries of the region managed to modernize their economies through foreign investment. Unfortunately FDIs constituted a really big share of their GDP, which negatively affected internal consumption and made their national policy sensitive to external influences. On the other hand, FDI-centric approach guaranteed fast economic growth, fast expansion to foreign markets and regional economic leadership in the future.

It is worth noting that USA at the start of the 60s also focused on attracting more foreign investments to promote creation of America as a global market place. Similar policy was taking place in the 80s. But because government also didn't have a nationwide program of stimulating local companies to expand outwards, this policy didn't have such a drastic effect on the nature of American enterprise and just made internal markets really tight for national companies. Thus the credit based economy of today was born.

Another defining feature of the development of South-Eastern Asian countries was a two stage development method utilized by the governments. First step was pinpointing leaders of the industry and fortifying their positions on the internal markets. Next step was to force them to expand outward through various economic and political incentives, thus creating national international corporations still deeply rooted in domestic market.

The usual tools of the trade used by the government in these cases (like in Japan, South Korea, Singapore) was removal of barriers for certain companies on their way toward internationalization and then using national political and financial capital to stimulate their foreign growth. Usually internal methods included applying direct political pressure on heads of companies, lobbying, introduction of specific laws that hindered business of disobedient enterprises, directing government investments, decreasing tariffs for equipment and materials required for production and increasing tariffs for competing products, adjusting rates and so on.

Banks also played an important role in stimulating outward growth of business. The government can take the reins of control here as well by influencing rates and directing loans. As mentioned before, <st1:place w:st="on"><st1:country-region w:st="on">USA</st1:country-region></st1:place> chose to increase lending to national companies in the 80s due to inflation growth and fall in production which in many cases replaced income and caused further economic stagnation and growth of debt. Asian countries prefer for their enterprises to rely on own capital and provide lending that will not exceed income. This also helped companies to rely less on share capital and removed another way companies could be influenced externally.

World Bank noted this specific, mentioning in its report that share markets in these countries developed late and didn't contribute as much to their growth and expansion as it did in western countries [1].

Another tools used by South-Eastern Asian governments were financial institutions. Up until mid-80s South Korean banks didn't play as much of a role in stimulating enterprise growth as government owned financial institutions did. Before that time government restricted lending from private banks, but eased up at the end of the 80s. This promptly caused instability in the country's economy at the start of the 90s. This prompted government to return to the old ways of government based lending.

Overall, external lending is also not a priority in these countries, because it destabilizes internal investment market and hurts internal economic balance. That's why the priority is on government owned financial institutions in the process of modernizing national economy.

In <st1:place w:st="on"><st1:country-region w:st="on">Japan</st1:country-region></st1:place>, for example, modernization of national industry was carried out through utilization of own national financial resources, especially at the start of this process. Loans from national financial institutions to Japanese businesses in 1955 helped buy 32% of new equipment, in 1965 - 16%, 1980 - 17,6% and 8,1% in 1990. Biggest lenders in this case were Development Bank of Japan, Japan Export-Import Bank (now Japan Bank for International Cooperation) and <st1:place w:st="on"><st1:country-region w:st="on">Japan</st1:country-region></st1:place> Finance Corporation. At the start of the 80s the amount of capital loaned by these institutions constituted 15,7% of capital borrowed by steelworks industries, 12,4% - metallurgy, 12,9% - construction materials, 8,4% - engineering, 7,7% - non-ferrous metals, 6,3% - chemical, and 5,7% - by electronics industries [2].

The biggest governmental lender in this case was the Development Bank. Overall most investment was directed into development of electricity generating industry, gas distribution networks and water supply, where loans by the Bank constituted more than a half of total investments. Additionally loans by the bank stimulated private investors to invest into the same parts of economies, which they saw as being protected by the government. Loans by the Bank would cover 30-35% of the total investment project and were to be paid back within 5 - 15 years. Lending rates were much lower than those on the public market and there was no 10% security deposit requirement [3].

Government rate adjustment was also utilized by Asian governments to great extent. Alice Amsden, a widely recognized American economist, noted that during 25-year developmental stage in <st1:place w:st="on"><st1:country-region w:st="on">South Korea</st1:country-region></st1:place> long-term government loans were provided to select businesses at a negative real interest rate in order to stimulate growth in specific sectors of economy [4].

World Bank experts also noted that government tax, tariff and fiscal policies not only lowered interest rates and created low-risk environment for investors, but also helped regulate inflow of foreign capital. Amsden herself noted in this regard that South Korean track record demonstrates that economic growth of a country is dependent on its ability to create price differences across different sectors of economy in a way that would stimulate the growth in certain industries. [5]

In 1986 government of South Korea manually regulated prices of 110 different goods, including prices on TV sets, paper, cars, medicine, steel, energy. This was done in a way that stimulated companies to diversify their portfolio into many different sectors in order to make profit.

In Taiwan government dictated pricing policy for goods that aimed to replace foreign imports, additionally minimizing expenses of local producers. Through the years they would slowly lover their price in order to stimulate companies to develop and become more competitive. As an example, in 1960 government allowed imported products that were to be replaced to be sold only at a price that was 25% higher than the average price on the international markets, in 1964 - 15% higher, in 1968 - 10%, 1973 - 5%, 2000 - 4, 2005 - 3% and so on. [6]

Another example would be Malaysia during the time of national economy reconstruction in 1987. Here this policy can be seen at its extreme end as prices in steel industry were allowed to soar to 298% of the world market, 163% in plastics, 82% wood production, 65% transport, 29% paper industry, 19% in engineering, and 12% in electronics manufacturing. [7]

As noted by a renown British economist John Dunning, that government's effort to create competitive national economy is proportional in its effectiveness to the economic and other tools that the government will utilize in this process, especially to its efforts to develop competitive multinationals. [8]

Creation and expansion of such multinationals abroad not only generates positive inflow of capital, but also provides governments with additional political gravity. Dunning also stresses that such results can be achieved in an environment, where government spent considerable effort to develop stable and productive economic environment on the domestic market, before focusing on exporting multinationals. And this is exactly how South-Eastern Asian countries were able to succeed.

Out of all Asian-Pacific regions only South-Eastern Asian concentrated all of their effort on cultivating multinationals. This policy is seen as the staple method for countries to transfer to a well-developed post-industrial society in the region.

Main instruments utilized by these countries to foster outward expansion of national business were:

• Access to information: spreading information on available investment opportunities and ways to develop business through various channels at home and abroad, conducting seminars and conferences;

• Diplomatic effort: establishment of business associations, chambers of commerce, supporting business meetings between business representatives and representatives of government;

• Education: teaching businesses about various aspects of investing and working abroad, local business consultancy;

• Establishing landing pads abroad: creation of special economic zones and support infrastructure in other countries. As an example <st1:country-region w:st="on">Singapore</st1:country-region> established <st1:placename w:st="on">China-Singapore</st1:placename> <st1:placename w:st="on">Suzhou</st1:placename> <st1:placetype w:st="on">Industrial Park</st1:placetype> in <st1:country-region w:st="on"><st1:place w:st="on">China</st1:place></st1:country-region> where they opened one-stop business solution for Singaporean investors as well as complimentary services (like schools for their children) that they could use during their stay there. Similar parks were opened by <st1:country-region w:st="on">Singapore</st1:country-region> in <st1:country-region w:st="on">India</st1:country-region> and <st1:country-region w:st="on"><st1:place w:st="on">Indonesia</st1:place></st1:country-region>. <st1:country-region w:st="on"><st1:place w:st="on">South Korea</st1:place></st1:country-region> is using system called iPark to support their IT businesses abroad by providing marketing, legal and financial services. Additional parks were opened in <st1:country-region w:st="on">China</st1:country-region>, <st1:country-region w:st="on">Japan</st1:country-region>, <st1:country-region w:st="on">Singapore</st1:country-region>, <st1:country-region w:st="on">UK</st1:country-region> and <st1:country-region w:st="on"><st1:place w:st="on">USA</st1:place></st1:country-region>;

• Stimulating investments abroad: by providing low-rate loans for export operations, project funding and tax exemption. Before applying such instruments government needs to consider benefits versus money it will loose on stimuli;

• Discount insurance: to guard against political risks governments provide national companies with cheap insurance that will cover part of their investment should they be unable to retrieve their money back.

Singapore constitutes a good case study for demonstrating how creating a comfortable business environment within and having a clear cut strategy aimed at fostering own multinationals and inviting foreign ones for cooperation can help quickly and properly modernize national economy, make it competitive and take it straight into a post-industrialized era. Singaporean government played a central role in this success story by developing national infrastructure, allocating industrial zones, partially funded development of industry, introduced beneficial tax system for multinationals, had a educated and well thought out foreign macroeconomic policy, fostered cooperation between national and foreign companies.

Such experiences of South-Eastern Asian countries are a classic example of a proper model for late-industrial overtaking development of a country. First of all, most of these countries (besides <st1:country-region w:st="on"><st1:place w:st="on">Japan</st1:place></st1:country-region> which was a regional economic superpower before WW2) didn't experience industrialization at the time this developmental program was introduced. Secondly, most of these countries were setting ambitious goals mostly connected to their desire to rid themselves of third-world country moniker. And lastly, few other countries of the world had their governments provide such extensive financial and political support to local enterprises.

Even though there are many similarities between countries in this region, there are also underlying strategic differences in their approach to the same problem. Thus it is possible to single out two different strategies that were used.

First type would be the one utilized by <st1:city w:st="on">Hong-Kong</st1:city>, <st1:country-region w:st="on">Singapore</st1:country-region> and partially by <st1:country-region w:st="on"><st1:place w:st="on">Taiwan</st1:place></st1:country-region>. These countries started rapid industrialization in the 60s, achieved high quality of life, established a powerful industrial base partially through foreign investment, and from there followed into the postindustrial phase.

The second is presented by the rest of the countries in the region and especially South Korea, Thailand, Malaysia, Indonesia and Philippines. These countries focused on developing their own independent national economy by fostering conglomerates and then stimulated them to expand abroad.

A common trait of these countries was fostering of highly industrialized and high-tech conglomerates on the domestic market, which was done through unification of government and business. The most important resulting growth factor of these kinds of "oligopolistic" economies was the growth of internal investments and capital liquidity.

To provide these conglomerates with means to expansion government: 1) ensured low price of labor, which increased their competitiveness; 2) allocated national resources through government owned financial institutions; 3) provided government guarantees for foreign loans to the exporters; 4) provided grants to the top performers to ensure their dominancy; 5) supported a stable exchange rate that favored export.

All this together has led to the creation of competitive national multinationals. But because each country used its own approach to the problem each had a different level of success. Especially this became evident after crisis of 1997.

Another important aspect for such success were government investments that allowed such multinationals to quickly invest into foreign know-how and catchup with and overtake global technological progress. Governments utilized active measures aimed at stimulating growth of these companies through grants and loans. Thanks to concentration of various financial institutions around large conglomerates (like in <st1:country-region w:st="on">South Korea</st1:country-region>) or ruling clans (like in <st1:country-region w:st="on"><st1:place w:st="on">Indonesia</st1:place></st1:country-region>) they had no problem funding their export operations.

This policy of high government involvement in the process of national business development of South-East Asian countries was always aimed at fostering national exports, which, besides improving quality of life, also boosts country's political presence on the global arena. Their community-centric mentality of internal economic policy is not at odds with global market rules. Such joint economical-political approach to international trade is in no way deficient, but instead seems to be much more beneficial than the classic free market enterprise-centric approach.

Sources used:

1. Rodrik D. The New Global Economy and Developing Countries: Making Openness Work /Policy essay No. 24 - Washington D.C.: Overseas Development Council, 2006. - Р.154;

2. Hasegawa H. Japanese Responses to Globalization: Politics, Security, Economics and Business. - 2006. - Р.76;

3. Same, P.84;

4. Byung-Nak Song. The rise of the Korean economy.- Oxford University Press, 2007.- Р. 78;

5. Same

6. Kelly J. Global Markets and National Interests: The New Geopolitics of Energy, Capital, and Information (CSIS Significant Issues Series). - 2006.- Р.28;

7. Same. - P.30;

8. Dunning J.,van Hoesel R., Rajneesh Narula R.// Explaining the 'new' wave of outward FDI from developing countries: the case of Taiwan and Korea . - Research Memoranda:Maastricht: MERIT .- 1996.- No. 1;

9. Byung-Nak Song.The rise of the Korean economy. - Oxford University Press, 2007.- Р.36.


В статье идет речь об интравертной специфике внешней политики восточно-азиатских стран, которая отражает особенности их внутри- и внешнеэкономических стратегий. Делается вывод о том, что политический потенциал стран этого региона обеспечивается рационально построенной политикой экономической экспансии. Такая политика возможна благодаря использованию инструментов государственного регулирования национальной экономики как единого целого.

Ключевые слова: интравертная политика, экспансивная политика, специфика государственного регулирования, национальные экономические стратегии.


The article is about the introvert orientation of foreign policies of South East Asian countries, which reflects specifics of its internal and foreign economic strategies. The conclusion is that the political potential of the countries of this region is ensured by the rational development of the policy of economic expansion. Such policy became possible because of the use of the instruments of state regulation of the national economy as single entity.

Key words: Introvert policy, expansion policy, specifics of state regulation, national economic strategies.