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What the Japan crisis means for Asian manufacturing hub

The immediate economic crunch across East Asia is expected to ease. It may then give way to a boom in exports of materials that Japan needs for reconstruction, a boost to Asian producers.

By Correspondent / March 16, 2011

People enjoy fishing near a container area (background) at a port in Tokyo on Feb. 23. For Asian exporters, the immediate impact of Friday's magnitude 9.0 earthquake and tsunami has been a disruption of trade with Japan.

Toru Hanai/Reuters


Jakarta, Indonesia

Across East Asia, people have been on edge over the risk of deadly radiation spreading from Japan. While that possibility is still remote, the ripples from a severe economic blow to Japan may prove more lasting for developing countries that depend on Japanese trade and investment.

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Economists say it’s too early to know the full financial impact of Friday’s magnitude 9.0 earthquake and subsequent tsunami, given the evolving nuclear-plant crisis. However, Barclays Capital has estimated that the total cost could exceed 3 percent of Japanese GDP. This would mean an increased burden on Japan’s government, which is already heavily indebted, and on Japanese companies that must replace destroyed assets.

For Asian exporters, the immediate impact has been a disruption of trade with Japan. This includes multinational companies that rely on sophisticated Japanese components, such as electronic parts, for products that are finished elsewhere. Suppliers of materials to Japan’s giant auto industry have also been affected, with rubber prices falling sharply on fears of a prolonged slowdown.

This immediate crunch is expected to ease, though. Indeed, it may give way to a boom in exports of materials that Japan needs for reconstruction, giving a boost to Asian producers.

This was the pattern seen after the 1995 Kobe quake, says Chatib Basri, an economics professor at the University of Indonesia in Jakarta. “After one quarter, there was an economic recovery because a lot of money was put in by the Japanese government.”

Thailand, Malaysia, and Singapore

Thailand’s central bank echoed this point, arguing that Thailand wouldn’t be badly affected by the quake. In Malaysia, a securities company, CIMB, estimated that a 1 percent drop in Japan’s GDP would shave only 0.2 percent from Malaysia’s economic output. But economists say that exports from Thailand, Malaysia, and Singapore to Japan will definitely take a hit in the short term.

A more long-term worry for countries like Vietnam and Indonesia is whether or not Japanese investment will be diverted by the domestic tragedy. Last year, Japan was the fourth-largest foreign investor in Indonesia and is a major aid donor. It has pledged to support various Indonesian economic projects, including a $24 billion plan to upgrade Jakarta’s creaky infrastructure.


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