Setback for Asia

Manufacturing Sector Hit Hard by Global Crisis

Major Asian economies are taking the brunt of the global financial and economic crisis with skepticism growing that their good old days are over. No one can deny that many Asian countries had enjoyed relatively high economic growth until the outbreak of the worldwide turbulence. They have long served as the suppliers of cheaper products to advanced countries.

The strategy of Asian countries has been based on exports. They have taken advantage of cheap but skilled labor to churn out low-priced goods and sell them to world markets. But now, their export-oriented policy is challenged by the deepening global recession. China, which has often been described as the world's factory, is facing an uphill battle to minimize the fallout of a sudden fall in global demand for its products.

China has boasted more than 10-percent growth over the past several years. But the International Monetary Fund (IMF) predicted early this month that economic growth will slow down to 6.7 percent in China and 5.1 percent in India this year. The two emerging economies are still expected to fare well compared with other Asian nations.

The IMF forecasted that the so-call Four Asian Tigers ― South Korea, Singapore, Taiwan and Hong Kong ― will suffer a 3.9 percent contraction on average in 2009. What's more worrisome is that the Korean economy will contract by 4 percent, the worst recession among the G-20 major economies. The reason behind the gloomier outlook is the Asian economies' excessive reliance on exports.

According to a report released by Bank of Korea (BOK) Tuesday, the manufacturing sector in South Korea and other Asian countries is feeling more severe pain than that of economies in other parts of the world. Industrial output in the United States shrank 4.2 percent in October, 5.9 percent in November and 7.8 percent in December. But Taiwan's industrial output contracted 12.6 percent in October, 28.3 percent in November and 32.4 percent in December. Japan's output also shrunk 7.1 percent in October, 16.6 percent in November and 20.6 percent in December.

South Korea withstood an output contraction of 2.3 percent in October, 14 percent in November and 18.6 percent in December. It goes without saying that countries heavily dependent on manufacturing and exports are the biggest losers. What's more serious is that they are mired in a vicious cycle of sliding global demand, production cuts, less investment and an economic slump.

The real problem is that South Korea and other Asian countries have made little progress in financial and corporate restructuring which is badly needed to ride out the global crisis. In this situation, companies will inevitably be subject to sharp investment cuts and mass layoffs, dealing a fatal blow to the economy in the region. It is imperative that Asian economies push drastic restructuring in a bid to get out of trouble before it's too late. And they have to reduce their dependence on exports and boost domestic demand. But this is easier said than done.