East Europe Steals Asia's Thunder

FOREIGN AID AND INVESTMENTS

CHINA has lost its luster. The new economic El Dorados are Eastern Europe and the Soviet Union. With a gold-rush enthusiasm, business strategies are being reassessed and generous aid packages devised. But where does all this leave Asian economies of the heralded ``Pacific Era?''

``It's early days yet, but it is a concern that there could be a focus away from the Pacific Rim,'' Australia's trade commissioner in London, Terry Hunt, has said.

Suddenly on Western Europe's doorstep are all the advantages sought after in Asia: Cheap skilled labor, investment-hungry nations, and a huge pent-up demand for consumer goods. Re-uniting Germany alone could create a powerhouse $1.4 trillion economy of 80 million people.

Automakers in Europe and Asia, including Volkswagen, Ford, Daihatsu, Suzuki, Kia (South Korea), and Daimler-Benz are all considering plants in Eastern Europe. On Nov. 28, Italy's Fiat leaped first by signing a joint-venture to produce cars in the Soviet Union for sale in Western Europe.

On Dec. 10, European Community leaders agreed to fund an Eastern Europe development bank. In addition, Poland's been promised $850 million in aid and loans from the United States, plus a $2.6 billion loan package from West Germany. And West Germany is drawing up a ``Marshall Plan'' to stimulate private investment into East Germany.

Australia has been capitalizing on the uncertainty of Hong Kong's future post-1997, especially since the Tiananmen Square uprising. It's marketing itself to European corporations as a more politically stable base for reaching Asian markets. Since early 1988, West German investment in Australia has quadrupled. But if Eastern Europe becomes the favored hot spot, Australia may suffer.

Of course, many firms in Asia and Australia have already increased capital investments in Europe to lock-in local advantages when the internal trade barriers drop in 1992. ``The 1992 attraction of Europe is being enhanced by events in Eastern Europe,'' says Jeff Schubert, chief economist of the Hong Kong Bank of Australia.

If capital flows are being redirected to Eastern Europe and the Soviet Union, some worry Asia's growth could be retarded. But most analysts say that's an unlikely outcome.

``I don't think it will significantly affect funds flowing to Southeast Asia,'' says a senior economist with the Asian Development Bank (ADB) in Manila. ``Until things settle down in Eastern Europe, until the trade legislation and legal guarantees are in place, businesses won't make a move.''

Also, since Tiananmen Square, China's demand for investment funds has dropped off. ``At the moment, international financial institutions are dying to find credible investments.''

The ADB economist warns: ``Unless China makes policy modifications quickly, it will lose the economic momentum of the past decade and find itself in a much more competitive market. China may find itself adversely affected by the changes in Europe in terms of borrowing money.''

This month's military coup attempt in the Philippines, with gun battles in Manila's Makati business district, has not exactly been an advertisement for more investment either.

Another consideration is that Asia's growth prospects are far more dependent upon Japanese than European investment plans. Roughly 70 percent of all capital flows into Asia now are from Japan. It has naturally fostered development in its backyard. And due to Eastern Europe's remoteness and ties to the Soviet Union, so far Japan's interest there has lagged other nations'.

Japan's trade with Eastern European countries accounts for less than half of 1 percent of its total trade. Japan had only nine joint-venture projects in Eastern Europe at the end of 1988, according to the Japan External Trade Organization (JETRO). This compares with more than 50 joint ventures between West and East Germany.

Last month, Japan offered a $150 million loan to Poland. But given Japan's $9 billion in annual global aid, it was a relatively modest commitment.

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