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Politics : Stockman Scott's Political Debate Porch -- Ignore unavailable to you. Want to Upgrade?

To: Jim Willie CB who wrote (4959)	8/22/2002 3:24:08 AM
From: TobagoJack	Read Replies (1) \| Respond to of 89467

Hello Jim Woolly, <<what do you see for future near-term prospects in Japan?>> My knowledge of Japan is at the level of a casual passing observer, riding on horseback, at a fast gallop, at night, from quite far distance. I do not have any Japanese securities in my portfolio Message 17888598 at this moment, but do have a ready line of Yen credit. I do not plan to draw down on the credit line anytime soon. My Japan-resident head of bond-trading friend advises me to ‘not short the Yen’. My company does do some work with Japanese trading/finance companies in China, and I do pay attention to the usual news out of Japan for the sake of my own financial survival. So, here it goes with the facts and just that: (a)Japan is still expensive, by world standard; (b)The Japanese population are aging very fast, ready to draw down their savings for golden years; (c)They are tremendously wealthy and have financial staying power, even after 12 years of down-trending equity and real estate markets; (d)They had only just recently cut back on spending on fun (outward bound travel is down 50% since 12 months ago); (e)The Japanese banking system is not well, and there is an uncertain but large amount of bad debt kept alive on the books; (f)The Japanese insurance industry is intimately invested in all things Japanese, including equity, real estate, and bonds; (g)The Japanese government had the borrowing capacity to do substantial infrastructure spending, helping to mitigate the effects of deflation and domestic business depression so that, instead, Japan has been kept at recession level for many years; (h)The US J6P has, with the help of Japanese financing, kept Japanese factories going strong; (i)Japan imports oil, mostly from a place that may blowup; (j)Japanese manufacturing companies are, willy by the nilly, relocating production facilities to China, or go out of business; (k)The Japanese political system has been incapable of producing dynamic leaders of vision for quite some time; (l)Japan is losing population. So, again, summarizing the facts, the Japanese are getting old fast and dying off, giving away the use of their wealth at insulting interest rate, losing employment, missing customers, and maybe without useful political leaders. And yet, because the Japanese account for 40% of the world’s savings pool, their capital movements will dictate financing rates and exchange rates around the world. Beyond the facts, and trying to discern the truth, I believe what happens in the US determines many of Japanese actions and reactions, because the US is their biggest customer and their protector. I believe Japan will have more problems if their J6P customers finally are forced to put scissors to credit cards, even as Taiwan, Korea and Japan continue to invest more manufacturing capacity and relocate more jobs to China. More regional productive capacity, fewer jobs at faster clip in Japan, and fewer customers in USA, together with tepid and then imploding domestic demand, and financial ill-health may accelerate capital re-allocation. Capital re-allocation from where to where is the open question. At this moment, the US seems singularly intent on making its capital market distressful to the Japanese, making them re-live the bubble nightmares, American style, and printing the USD to weakness, even as Japan wants to print the Yen to death. And, oh, almost forgot, a war in the ME will shake Japan in a bad way, via oil import, car export, and financial confidence channels, as well as heightening a sense of national insecurity given neighbors remembering old wrongs. That is enough gloom and doom for one post. At the onset of war in the ME, as there is nothing personal in matters of finance, I may draw on Japanese Yen line of credit, not to convert to assets denominated in other currencies, but to buy Japanese shares at a value that make sense on sustainable cash flow basis, taking account of domestic business and overseas investments. For example, NTT may be OK at some price. Yen may go down through government printing, then the shares may rise due to increased cash flow, or Yen may go up due to capital repatriation, and the share price may stay level, allowing for an exchange rate gain. At 1% borrowing rate, much room is made available for mistakes. Chugs, Jay Reference Japan’s role in the world today: Message 17803400

To: Jim Willie CB who wrote (4959)	8/22/2002 3:25:00 AM
From: TobagoJack	Respond to of 89467

South Korea Fueling Chinese Competition With Investments 21 August 2002 stratfor.com Summary South Korea invested $320 million in China in the first half of 2002, a 10.3 percent year-on-year increase; this is twice as much as South Korea has invested in the United States during this period. The shift in investment flows is due both to a desire to be first in China following its World Trade Organization entry and to the slackening U.S. economy. But such heavy investment in a competitor may threaten South Korean domestic industry in the long run. Analysis South Korea invested $320 million in China in the first half of 2002, twice the $160 million it invested in the United States, according to the Korea Trade-Investment Promotion Agency (KOTRA). This also marks a 10.3 percent year-on-year rise for Korean investments into China, and it places Korea on track to invest $700 million in China this year. Korean investments in China stood at $510 million in 2001, compared to $580 million in the United States. Several factors are contributing to this rise in investment flows away from the United States and toward China. The U.S. economy has been slack, while China's November 2001 membership in the World Trade Organization has sparked a massive surge in incoming foreign investments. China's proximity, coupled with its cheap labor and massive market also have attracted South Korean companies, which steadily raised investments in China from 1992 until 1997, when the Asian economic crisis short-circuited most economic activities. But while South Korean firms have been eager to expand their presence in China following Beijing's WTO entry, Chinese products are growing more competitive with their Korean counterparts. In order to contend with China's emerging economic might, South Korea is seeking to climb on the China bandwagon, but in doing so, it risks harming domestic industry in the long run. After a brief dip following the Asian economic crisis, South Korean investment in China revived in 2000. China now represents the top destination for South Korean foreign investments. In 2001 Korea became the No. 1 investor in China in terms of the number of projects, though in dollar terms it stood at fifth behind Hong Kong, the United States, Japan and Taiwan. According to KOTRA, Korean firms have invested primarily in the manufacturing sectors in the Shandong region and Heilongjiang, Jilin and Liaoning provinces, where there are large concentrations of ethnic Koreans. While Korean investments in China are expanding in terms of sectors and regions, so is South Korea's dependence on China as a market. China emerged in 2001as the second-largest importer of Korean goods, taking in 12 percent of South Korea's aggregate exports while the United States imported 20.8 percent and Japan 10.9 percent. The percentage of South Korea's exports going to China grew again in the first half of 2002, with China taking in 13.5 percent of exports. Despite the overall rise in South Korean exports to China, Seoul is steadily losing market share there. As Chinese industry develops, domestic firms are producing more products that compete directly against South Korea's key exports to China, in particular electronics and appliances. According to the Korea Herald, Chinese electronics production is valued at $71.3 billion, higher than South Korea's $67.3 billion. And Chinese firms are moving into more value-added products, further threatening South Korean industry. The boom in Chinese electronics poses a challenge beyond China's borders as well, as Chinese goods are competing more effectively around Asia. Tokyo, for example, already is raising concerns that Chinese auto manufacturing will chip away steadily at Japan's dominance over the next decade. Chinese electronics and appliance exports already are eroding South Korea's market share in several key Southeast Asian markets, and Beijing continues to eat away at South Korea's share of exports to Japan, according to KOTRA. Yet as with most other Asian nations, South Korea is at a loss as to how best to deal with China's apparently unstoppable evolution into a regional economic power. On the one hand, South Korea doesn't want to miss out on the marketing opportunities inside China's liberalizing economy. Seoul realizes that to remain competitive with China, it must lower costs, and one of the best ways to do that right now is to move manufacturing operations to China. But the more money and technology South Korea pumps into China, the more competitive China will become against South Korea's own industries. Unless South Korea can reshape its investments in China -- focusing on the service or other sectors -- and continue to evolve its own domestic economy, it risks long-term damage to domestic industries as they continue to pack up and move to China in order to remain regionally and globally competitive.