Riding out the Great Asia Depression

2009 is the Year of the Ox, according to the Chinese zodiac. The Ox is the sign of prosperity through fortitude and hard work. Many Asians expect 2009 to be the Year of the Skinny Ox. Asia’s political leaders, civil service, businesses and citizens are preparing for the worst year since the 1997 Asian crisis. Macro economic and strategic planning forecasts have already been heavily revised downwards. Governments are rolling out short term economic crisis stimulus packages. Businesses are preparing to announce more retrenchments after the Chinese Lunar New Year (26 Jan to 9 Feb). Consumers have become frugal and fearing the job axe, resulting in quiet shopping malls and worried retailers. Already, the fear of axe and lack have people accepting that 2009 will be another 1929. During the 1929 Great Depression, there was widespread poverty, hunger, unemployment, stock market crashes, reduced industrial production and corporate bankruptcies.

How then will Asia manage 2009?

One 1929 government economic reform then was to raise needed finance by sale of their national assets to foreign investors. A consequence of such privatisation and capitalisation was political unrest from unhappy voters, unions and workers. These days, these foreign investors tend to include more government sovereign funds which invest with a longer term objective. We can expect some Asian governments to implement partial privatizations of their state assets with lesser political cost if the investors are sovereign funds than corporate investors.

Another possible Asian government economic policy is to promote greater intra-Asia trade and investment. China and India offer two mega markets. Developing countries like Vietnam and Laos provide low cost production. Hence, South East Asia is expected to play a middleman role, producing in cheaper locations and re-export to mega markets. We expect to see more trade missions, ‘Meet The Buyer’ B2B events, Asia FDI attraction training seminars and ‘Woo the Asia Investor’ missions. Opportunistic investment promotion agencies (IPAs) outside Asia can consider wooing Asian FDI to consider non-Asia locations with a more aggressive investment incentive package including cash. Who says only retailers use ‘cashback’ promotions? Likewise, Asian IPAs should find suitable non-Asian investors to diversify their investor base.

While foreign FDI flows into Asia is expected to decrease, opportunistic Asian businesses can capitalize on these cheap asset times by updating their Asia market research to capture changing market opportunities and to conduct selective Asian M&A due diligence with some discounting and decide according to risk preferences and time horizon. Cost cutting, reduced shift hours and worker retraining will continue to be common practices. Expatriate management and employees are also expected to be laid off in favour of cheaper domestic employees.

Asian workers and consumers are expected to tighten their belts, reduce spending on non-essentials and take on multiple jobs. Older retrenched PMEBs are also expected to become SME entrepreneurs or retrained to take on lower paying jobs.

Asia, having survived its long history of turbulences, will simply revert to its pre1997 crisis days by being risk averse, high-saving, and low-consuming until the 2009 storm blows over. As the Chinese proverb goes (qi lu zhao ma), practical Asians, expecting an Ox, will continue riding a mule while looking for a horse, settling for what they have while looking for something better. This too, shall pass some day.