Mason,
I derived a pretty dark picture of Asia's future (s/t) from this article ("Japan's Social Crisis" Murray Sayle, June '98 Atlantic), as the demographics/politics of Japan are against any kind of domestic demand led recovery. The article seems to say that things won't change: more export-only strategies from Japan and the stricken countries of SEA, all fighting with the "mother of all sweatshops", China, for access to the only decent markets of the world, ie; N. America and Europe. (Japan's aging, and cautious consumers in no mood to splurge on foreign products...esp. in the midst of the deflation of the late 80's bubble, and SEA customers fresh out of spending cash/credit.) The article states that the problems for SEA, and by extension, Japan (banks) started in '94 when China devalued by 33%...the SEA export platforms then started to loose market share to China, and eventually couldn't make the interest payment on some $265 billion owed to Japan, and $200 billion owed to European, U.S. and Austrialian banks. Since the SEA export platforms are a result of Japan's greater costs and harder currency since 1990, how are the SEA economies going to pull themselves back into solvency without a massive price competition with China for Western markets? (They _are_ the cheaper alternative, there's no other place to go...and the govt of say, S. Korea isn't going to encourage a flight to even cheaper places.) And will China not then just devalue in order to take the lead again? Mason, are you concerned that Japan will liquidate some investments (US lt bonds) in order to generate some cash, thus causing US rates to jump, with all the attendant chaos that might initiate? If so, why would Japan (as the article states) want to destroy it's major market? (Such an unfriendly move would surely be countered by trade retaliation.)
The article seems to imply that it might be some time before we see the end of pretty sharp price competition in Asia, as Japan's bloated export industries have been replicated with Japanese capital in SEA--all competing for the same markets in the Western world. We can't expect a pickup in demand from Japan because of it's "Social Crisis", ie; the graying of the Japanese, and the desire to keep in place the export-oriented strategies that have brought them so much success in the past. Are we going to see eventually enough emulation regarding Japan Inc's road to "success" by various developing countries that we will see a replay of the deflation of commodities that occured in the mid-70's in manufactures? In the case of semi-equips, it would seem that in semi manufacturing, we're in for a bruising fight to the finish over a finite Western market--not much in the way of profits to be had in such a desperate melee. Or...will technical considerations, such as shrinking geometries, and larger wafer sizes force a round of upgrades on semiproducers, leaving those that don't/can't upgrade to wither away? |
