December 26, 2013 1:00 pm JST

2013 IN REVIEW: Asian economies experience ennui

Smog envelopes Beijing. China's three state-owned oil monopolies are reluctant to make investments to ease serious air pollution.

BEIJING/JAKARTA -- Fatigue set in as many parts of Asia, a previous driver of global growth, became bogged down in 2013 in political and economic turbulence.

The state-owned state they're in

Reforming state-owned enterprises was one of the main focuses at a November Chinese Communist Party plenum. Under the leadership of President Xi Jinping, the party promised economic reform and the modernization of state-owned enterprises.

     Policies laid out at the plenum promote reform and liberalization, increased use of private capital and the introduction of market mechanisms to help China overcome its inefficiencies. Any tangible effects from the policies laid out at the plenum have yet to emerge.

     "There is a limit to how much a private company grow in China," said the top management at a large privately-owned construction machinery company. The company moved its headquarters out of Hunan Province in the south-central area of the country, where it was founded. It is rumored this move was prompted by harassment from a rival state-owned enterprise there.

     Critics in China say that the prioritization of state-owned enterprise over private business is an example of the state putting its own advancement ahead of that of the people.

     The previous government recognized this problem and embarked on reform under the leadership of President Hu Jintao. The number of large state-owned businesses during Hu's decade in power almost halved, from nearly 200 to slightly more than 100. The process, however, just made those state-owned enterprises that survived more powerful, with combined profits more than quadrupling to 1.3 trillion yuan ($209 billion).

     China's has this year had troubles away from the economy too. Many places in the country are again suffering from severe air pollution caused by PM2.5 particulate matter. 

     Low-grade gasoline that contains 15 times more sulfur than the auto fuel sold in Japan has been blamed for the pollution. China National Petroleum and two other state-owned oil companies, which essentially have a domestic monopoly, have been reluctant to make the 50 billion yuan that is said to be required for environmental improvement.

     Private business remains essentially shut out for the oil industry in China. Telecommunications, banking and many other industries are also under the government's iron grip. This inefficient structure is likely to hobble any chance of moving the world's second-largest economy in terms of gross domestic product toward sustainability. And powerful vested interests are getting in the way of the reform process.

     A territorial dispute between the governments in Tokyo and Beijing over the Senkaku Islands, known as Diaoyu in China, continued to dampen two countries' economies in 2013. According to the Japan External Trade Organization, Japan's exports to China from January to October came to $106.3 billion, down 13.5% from the same period a year earlier. Japan's imports from China over the 10-month period decreased 4.5% to 149.3 billion dollars.


The South Korea-Japan relationship is also tense. But Japan's neighbor has issues of its own. Overzealous acquisitions and investments before the 2008 collapse of Lehman Brothers culminated this year in a series of bankruptcies among midsize conglomerates, including the Tongyang Group.

     Southeast Asia also hit economic and political bumps in 2013. In Thailand, the economy slowed as the exuberance from sizable tax cuts subsided. The country has also slid back into political turmoil as tensions between those loyal to former Prime Minister Thaksin Shinawatra and those against him have again spilled out onto the streets. In Indonesia, the flight of foreign capital has caused the value of its currency, the rupiah, plunge. And in the Philippines one of the most powerful typhoons ever seen has created a massive rebuilding task for the government.

     Slow recoveries in external demand and sputtering domestic consumption have hit Southeast Asia. The Asian Development Bank gradually lowered its 2013 growth projection for real gross domestic product in the region. The bank's forecast in April pegged the growth rate for the year at 5.4%, but the latest figure stands at 4.8% after a 0.1 percentage point downward revision in October.

     This downgrade took into account the political turmoil in Thailand, which will likely negatively impact on the country's tourism industry.  The devastation in the Philippines due to the massive typhoon was also factored in, since the disaster in the country's central region is certain to wreak havoc on the country's agriculture industry.

     Consumer markets in the region were mixed. In Thailand, auto sales plunged as an economic stimulus package ended. The restaurant and other industries cut prices one after another in response to weaker consumer spending. In Vietnam, weak consumer spending led to sluggish domestic demand. By contrast, auto sales are at all-time highs in Indonesia, where consumer spending holds firm. But its falling currency has pushed up import prices, resulting in inflation for some sectors.