Crisis fallout in Asia feared to be huge

Contrary to what economists have earlier predicted, the global financial crisis' impact on Asia will be hugely felt, a Chinese bank official said yesterday.
“We can see that the impact on Asia is expanding and the key issue now is to prevent a financial crisis or a currency crisis similar to what happened in 1997 to happen again,” Dr Zhu Min, vice-president of the Bank of China, said at the 11th Asia-Europe Business Forum at the China World Hotel.
“It will be a pretty cold and long winter ahead,” he added.
Zhu explained that the impact on Asia will be deep because the region is highly dependent on international trade and its capital flow mostly come from the West.
He said countries like India, Indonesia, Thailand and South Korea that have huge foreign investments may feel the crunch.
“If the global economy is in crisis, the demand for exports will obviously suffer…so we can expect Asia to run into a difficult situation,” he said.
Asian countries with a high export ratio in relation to GDP are: Singapore (180 per cent), Hong Kong (150 per cent), Viet Nam (70 per cent), Taiwan and Thailand (60 per cent), South Korea (40 per cent) and China (33 per cent).
“China will still feel the pain. We should not think that we are outside the financial crisis,” Zhu said, noting that the Chinese government's monetary policy will help its economy stabilise but does not necessarily exempt it from feeling the impact.
Business and economic leaders at AEBF earlier put their hopes on China and India to help keep the region afloat amid the global financial crunch. But Zhu said the next six months will be crucial in feeling the effects of the crisis as capital flow from the United States and Europe are expected to decline.
He also said China needs a “big package” of infrastructure investments to stimulate its domestic economy especially since its industrial profit and budget revenues have dropped dramatically.
Zhu also cited fears from financial experts that South Korea may be the “Iceland of Asia” with the drastic drop of its currency in the past month by as much as 40 per cent.
“If foreign capital flees, it will put more pressure on the South Korean economy,” Zhu said. “If we see more capital flight, the market will be very volatile.”