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This article from Finance & Development profiles Zhu Min, a Chinese economist who has worked at the International Monetary Fund (IMF) and in Beijing. Zhu believes in a borderless world where capital, people, technology, and trade flow freely, but acknowledges the challenges of anti-globalization. He has been influential in bringing about reforms at the IMF, such as giving emerging market economies more sway and including the Chinese renminbi in the basket of currencies determining the value of special drawing rights. Zhu calls for further transformation of the IMF to address the changing global economic landscape, but it remains to be seen if the institution can control its own fate. [Extracted from the article]

Concern remains about the future of Resona Bank after the government bailed out the company three months ago with $17 billion. This bank's financial difficulties is symptomatic for the nation's banking industry.

It is becoming increasingly common in financial circles in Asia to question the judgement of Moody's Investors Service. Asian companies and governments feel that this ratings agency, one of oldest and most respected, has been responsible for exacerbating the crisis in the region with frequent and often large downgrades of sovereign and corporate debts. Similarly, investors are also expressing concern about ratings agencies. They feel that agencies are now fallible and that their decisions are often unpredictable and hard to understand.

Indonesian companies Sekar Bumi and Sekar Laut achieved strong growth in the period to 1994, mainly through shrimp processing. However, the Sekar group began to experience difficulties when its founders, the five Harry brothers, developed an interest in financial market dealing. Sekar is now unable to pay its creditors, and has only managed to survive through the intervention of Bank Negara Indonesia, which has supported it because it employs many people. The company's experiences are a clear example of how some Asian conglomerates have been unwise to diversify.

Goldman Sachs is determined to retain a strong presence in Asia, despite economic instability in the region. It currently has 20 investments worth almost $700 million in Asia, and has played a key role in adding value to companies across Asia. It is seeking to derive maximum benefit from the decline in regional stock markets, and is considering investment in a number of companies that it believes have seen their shares unnecessarily downgraded.

Asia's economic crisis started with the July devaluation of the Thai baht and deepened with the sell-off in Hong Kong, reinforcing perceptions of Asia as a risky investment. It is now difficult to see how Asia will be able to maintain even marginal growth, with offshore institutions withdrawing from markets, and banks only willing to fund their best customers. China will will be unable to raise capital due to high interest rates, and confidence in its economic stability will be weakened.

An overview of the Southeast Asian 1997 financial crisis reveals the structural problems which led up to it, and the responses which are necessary to ensure recovery. Economic growth is weakening in the wake of the currency crisis, and this is revealing the structural weaknesses which had previously been disguised by the continuing inflow of cheap capital. The regional governments need to stand back from their defensive responses to the crisis, study and acknowledge their problems, and make changes to ensure further growth is more solidly based.

The economies of Southeast Asia are facing crisis, but the situation offers them the opportunity to take stock and make long-overdue reforms. Analysts believe that the governments could make a number of economic changes which would ensure long-term survival in the globalized economy. These include currency flotation, increased industrial competition, more freedom for central banks and more controls over other banks. However, the governments do not appear to be addressing these issues, preferring instead to concentrate their efforts on apportioning blame.

Interested parties are judging the currency crisis in Thailand from their own particular viewpoint. Some Asian countries which have been working towards deregulation have become cautious, and the central banks which support regulation are using the crisis to further their arguments. Foreign investors have also become cautious about the south east Asian markets. Thailand's main problem was the manner in which it deregulated its currency market. The process being followed in other countries, including Korea, Japan, and Taiwan, is discussed.

Shares in Hong Kong-based Siu-Fung Ceramics, which was originally a small trading concern buying ceramics-making equipment and selling it into China, stopped trading in Oct 1996, and shortly afterwards Hongkong Bank placed the company under credit control. It is possible that creditors will have to write off more than $250 million, most of what they lent to the company. Problems arose because Siegfried Lee, who founded the company, allowed it to grow too rapidly and started to believe that he was infallible.

Investment company Jardine Fleming Investment Management is attempting to mend its tattered reputation in Hong Kong following an investment scandal concerning its star trader Colin Armstrong. In August 1996, London and Hong Kong regulators said that they would discipline Jardine Fleming for breaching investment codes of conduct within its fund management arm. The malpractice centered on Colin Armstrong who was charged with delaying charging deals to accounts and making substantial personal profits. Armstrong resigned from the company.

Hong Kong's banks have expressed optimism about the planned handover of the colony to China. This change could increase business for Hong Kong banks, though there is concern that some business could be lost if closer links develop between Taiwan and China. There are other concerns such as slower economic growth in Hong Kong, which could drop to 3.5% in 1998 from an estimated 4.5% for 1996. The real estate industry is affected by political developments.

Asian economic growth has helped fuel the development of the banking industry and European universal banks are entering this market. Deutsche Bank and Union Bank of Switzerland are among European banks operating in Asia. Competition has increased as more foreign banks are attracted to Asia. Some critics of universal banking point out, however, that information is still a key strength rather than capital. Growing industries offer opportunities for investors in areas such as power and telecoms. The Bank of Japan is also seeking to develop closer links with Asian central banks.

The Hong Kong-based brokerage Peregrine Group has enjoyed tremendous growth since it was founded in 1988 and now has 16 offices throughout Asia and over $1 billion in assets. The company, led by co-founder and chairman Philip Tose, has prospered by being able to make quick decisions and benefits from excellent business connections within Hong Kong. Peregrine plans to transform itself into a full-service investment bank from a equities boutique which requires changing from an entrepreneurial culture to an institutional one.

Japan's large trading companies, called shosha, are taking significant risks in various industries and leading the way to development in parts of Asia. Companies such as Mitsui and Itochu provide capital and technology in developing regions. Such shosha are flexible and have tremendous connections throughout Asia, which allow them to function as intermediaries between companies. They have helped develop technology, physical plants, and energy resources. The shosha have been criticized for their small profit margins and secrecy.

Asian banks have been remarkably profitable for the past 10 years, except in Japan and, in some ways, S Korea, and they remain strong, but show signs of believing a downturn can never come. In fact, despite combined-capital ratios well over 10%, banks in Jakarta and Taipei are vulnerable to the same forces that are devastating Japan's banks. The region is making a transition to other sources of capital, as well as to increased privatization and a reliance on profit rather than taxpayers, at last matching responsibility with risk.

Chinese traders on the London Metal Exchange no longer play their dominant role of 1993 and 1994 thanks to a lack of cash at home and credit from overseas. The Chinese govt is cracking down on practices that hurt the country's credibility and nearly drove the economy out of control, forcing traders in metals and similar commodities to take a lower profile. They remain major global players, despite nervousness arising from some failures to pay their debts. Some current metals trading may mask debt financing.

Stock Exchange of Hong Kong Chmn Charles Lee on Jan 27, 1994, made public the second group of Chinese companies that will be allowed to list. Lee hopes to continue the success that marked the first group, announced in Oct 1992, six of which are now traded on the exchange at a considerable premium. However, some critics question whether the exchange and the Securities and Futures Commission are adequately monitoring the risks that these Chinese companies bring with them. Doubts about ownership and family political influence are two such risky factors.

Interest in direct investment in China is growing among foreigners who hope to profit from China's economic modernization. Direct investment involves the pooling of cash to purchase equity in unlisted firms whose profits can then benefit subscribers and provide fund managers with fees and part of the gain. Direct investment in China probably amounts to billions of dollars though the exact figure cannot be determined. Choosing a promising Chinese firm to invest in and figuring out how to sell so that a gain can be realized are among the problems facing direct-investors in China.

Japanese companies have found that many problems can hamper investment in China. The promise of China's gigantic market for goods and services, the rising yen and the Japanese recession helped to make Japan the fourth largest investor in China. However, these investors have encountered many difficulties including China's dual-currency system, the lack of qualified employees, the lack of freedom for incentive systems, political instability and the imposition of risky contractual and operational practices.

New World Development, a large Hongkong-based real estate firm, is now concentrating on China. New World owns 25 million square feet and a total floor area of about 48 million square feet in China, compared to only 6 million square feet in Hongkong. Moreover, New World bought its Chinese holdings for only $12.8 million. Large residential projects in Canton and Peking are planned. New World, with its favorable cash flow, will probably see its earnings grow from 15% to 25% within the next five years provided money-losing investments are avoided.

Indonesia's new cabinet members include several new faces who represent a bold move away from a technocratic approach toward Minister for Research and Technology Bachruddin Habibie's economic nationalism. The greatest challenge for Coordinating Minister for Economy and Finance Saleh Affif, Finance Minister Mar'ie Muhammad and central bank Gov Sudradjat Djiwandono will be to restore confidence in the failing bank system. Local and foreign creditors were scared by the collapse of Bank Summa. Both private and state owned banks have been forced to raise interest rates to fight heavy defaults on debts.

Most fund managers in Asia now have negative views about all emerging markets across the world, believing the developed markets offer a much safer investment option. It is not anticipated that Asian financial markets will revive in the near future. Fund managers have different criteria which will determine when they will be prepared to invest in Asia again. Many are widening their mandates from just buying Asian equities to selling them too. Pessimism about Asia is partly fuelled by fears that Japan could have a negative impact on the rest of the region.

The Deputy Prime Minister of Thailand asked Japan to take decisive action to support the yen and he also asked other industrialized nations to do all they could to stop the yen falling further in value. However, his pleas have not been answered. The U.S. refuses to intercede in Japan's problems because it argues that Japan has to sort out its own problems. This refusal to help will affect the whole of Asia. Export orders will decline and Japan may close its foreign factories in Asia. Japanese banks may also stop giving credit to other ailing Asian economies.

Many foreign business people are in Thailand to try to buy up companies in financial difficulties, such as Korea Inc. However, not many deals have been made because of legal complications and resistance to selling to foreigners. Many companies refuse to accept the severity of their economic problems and do not accept offers of financial help. The Thai government is also reluctant to encourage foreign companies to take over businesses. It would prefer them to buy shares which the Thais could buy back later. One deal which has gone through is between the Bank of Asia and ABN-Amro.

The problems facing Asian banks are particularly severe in Indonesia, where the banking system is believed to be on the point of collapse. Many exporters based in Indonesia have suspended output because they cannot obtain working capital or import inputs, while foreign lenders have mainly stopped accepting letters of credit from Indonesian banks. In Thailand, liquidity has not completely dried up, but the partial credit crunch is creating severe problems. In general, Asian banks are unwilling to disclose the information that would give investors sufficient confidence to assist in recapitalizing financial systems.

Asian financial markets are likely to see continued uncertainty in 1998, with Asian companies set to experience considerable difficulties. The region will probably see the departure of many investors, especially as deflation becomes established. Asia's apparent economic success is now being re-assessed, with some observers believing that many Asian companies achieved earnings growth mainly through securities trading and dubious accounting methods, rather than through their core operations.

Organizations throughout Asia are traditionally reluctant to disclose information about themselves. The same attitude is apparent in both companies and governments. They also demonstrate ill-feeling towards those, including journalists and brokers, who try to reveal more information. The lack of transparency may have played a large part in causing the Asian economic crisis, and the response of blaming the disclosers is evident in its aftermath. Investors believe that transparency is vital for economic recovery.

The Indonesian rupiah has dropped in value and this has led to problems for companies which have borrowed in US dollars. The extent of this debt has to be assessed if the problem is to be tackled. Default could occur and some payments have been missed. There is insufficient transparency in financial affairs in Indonesia which hampers the efforts of the central bank in tackling this problem. Recovery could take several years if banks and companies collapse.

The 1997 currency crisis in Asia has meant that financial markets are more volatile and less certain. Investors can still make good gains in these markets, as is shown by the case of Hendale Asia Investments which has seen a 50% rise in its portfolios, while asset prices in these markets are dropping. Transparent balance sheets have become more important. Currency risk was not given enough weight in Asian borrowing in US dollars and this created an illusion that profits and growth could continue to rise indefinitely.

The International Monetary Fund (IMF) is considering its future role after experiencing frustrations connected with the Thai financial crisis. The IMF warned the Thai government about the looming problem in May 1994 and Jul 1996, but the government did not heed the advice. IMF staff feel frustrated about their lack of power and about the unsupportive conditions in which they often have to work, and they are calling for the IMF's work to be more public. The IMF has found new purposes for itself on a number of occasions in the past, particularly at times of crisis.

The Southeast Asian financial crisis affected perceptions of the region's economic miracle, but some analysts see the miracle emerging in other Asian countries. Many investors are looking to China. They see barriers to foreign capital being lowered, foreign debts being repaid and a successful export sector. However, China has problems, including an inefficient state sector and a tendency towards over-investment. South Korea may have a more realistic chance of growth. It is highly dependent on foreign capital, and there will be bankruptcies, but Korea is acknowledging and learning from its mistakes.

The Thai baht devaluation of Jul 1997 may mark the beginning of a profound change in Southeast Asian economies. Southeast Asian economies have benefited for a decade from stable exchange rates linked to the US dollar. This helped their exporters in their most important market and provided encouragement to foreign investors. The Thai situation has ushered in a period of adjustment and slower growth in Southeast Asian economies, and has disclosed the limits of regional monetary cooperation. The economies which can adjust to the new flexible exchange rate situation will emerge stronger then ever.

Asian financial markets are undergoing a transition after a period of underperformance. There is pressure on real estate. financial services and telecoms, which previously attracted investors. Institutional investors have time to study the market, but retail investors are sometimes buying on rumors and they have a major impact on the Hong Kong stock market. Speculation is being carried out by investors and high levels of leverage mean that any problems that develop are likely to be more serious.

China International Trust and Investment Corp. President Wang Jun is meeting with new and influential contacts in an attempt to secure a future for himself now that his power and influence in China is diminishing. Wang is meeting with senior figures overseas including President Bill Clinton to further his search for a comfortable life outside China. His critics think that his methods will fail because he is unused to Western ways.

The creation of Unicom in 1993 was meant to herald reform in China's telecoms sector. It was set to take a 30% share of the mobile communications market by the end of the decade, with investment of 300 billion renminbi. However, although the company is said to have signed joint venture agreements with foreign partners and has raised $1 billion, its subscriber base is less than 30,000 and is operational is only a few major cities. The company also faces competition from the Ministry of Posts and Telecommunications, which is also its regulator. To foreign operators Unicom represents some of the worst aspects of operating in China.

With the bulk of its business intimately tied with Hong Kong's economy and culture, Hong Kong & Shanghai Bank will continue to be enslaved by the political forces acting on both Hong Kong and China. Hong Kong Bank amassed its financial strength in Hong Kong, acting primarily as the financial lender to the territory's build up of infrastructure. With this role, Hong Kong Bank accounted for 45% of its parent's profits, despite accounting only for 30% of the conglomerate's assets. Hong Kong Bank is diversifying its services from lending, adding its capital-markets service through the formation of HSBC Markets.

India's coalition government has repeatedly emphasised its commitment to the economic reforms which were launched in 1991. However, in practice little real encouragement is being given to foreign investors or to India's own private sector. Indeed, many observers are now beginning to question the government's commitment to economic reform. India is regarded as being almost completely closed to investment, especially in comparison to other countries in south east Asia.

Chinese banks are seeking changes in bankruptcy legislation which they argue provides more protection for debtors than for creditors. Interest rate levels have little impact in China since little attention is paid to loan repayments or investment returns. State banks are receiving less money from China's central bank and are using depositors' money for loans. There is more pressure on them to deal with bad debts, but managers do not have enough training to assess who should qualify for a loan.

The enormous fortunes accumulated by Indonesian President Suharto's children through family favoritism raise questions about economic justice and what will happen when Suharto dies. Recently, Bambang Trihatmodjo received a free license for telephone services. He then sold a stake in his telecoms subsidiary to Deutsche Telkom for $600 million. Bambang, however, unlike his siblings, is courteous, accessible, and is trying to build a viable, competitive business, efforts rewarded by a Jakarta Stock exchange listing. Nonetheless, critics argue that Bambang makes business decisions strictly in his self-interest.

A growing range of financing options for both corporations and infrastructure projects has made funds more readily available than ever, especially for the best deals. Banks have long restricted the use of capital markets, though now some are using them to become equity owners more than lenders. China and India are still building the frameworks for more open markets that other countries in the region embraced a generation ago, but even there more than enough money is available. More local investors are needed, however.

Investment-fund chief Jack Perkowski regards China's short-term future optimistically, claiming it is emerging from a slump that has kept his investments there from generating substantial returns. The $300 million he put into 12 mainland companies in late 1994 and early 1995 makes him a major player in that market, and signs are he may have the right approach. However, even as the economic picture clears up and customers get the money to pay their debts to his companies, competition is making management a priority.

Political worries about many Asian countries combined with fears US stocks and bonds could fall have combined to weigh down interest in Asia's markets. Some analysts say the US stockmarket could fall up to 25%, and bond rates could rise from 7.25% to 8%. More significant, though, are concerns that the generation of leaders who brought Asia from the 1960s to the present are passing, with implications for the economies linked to their personal political empires. Hong Kong's prospects are especially cloudy.

The Everbright group of companies in Hong Kong have suffered from continuing investment mistakes despite having high-profile connections with mainland China. The experience of Everbright shows that Chinese-owned companies operating in Hong Kong must depend on the expertise and ability of skilled managers instead of political contacts. Most of the firm's top management consists of a rotating group of Chinese officials who lack business experience. Everbright's companies are involved in businesses ranging from manufacturing to property investment and banking.

Asia's stockmarkets can expect a volatile second quarter in 1996, following a strong first quarter, as money from the US and elsewhere surges in again and investors display renewed confidence. Experts warn against riding indices, saying selective stock-picking is essential due to uncertainty about short-term interest rate moves in the US. Low rates worldwide suggest no more cheap capital is forthcoming, complicating the issue. Japan's pension-fund reforms are promising, and Australian mining stocks look attractive.

The approach of 1997 has Hong Kong's stock exchange managers and the Securities and Futures Commission concerned that well-connected mainlanders will ignore the rules that earn the market respect overseas. The exchange may get caught between its desire to keep credibility internationally and its eagerness to remain China's main stock market. The two Hong Kong bodies are at odds, and divisions among the colony's brokers has many asking Beijing to block such new products as futures and warrants.

Asian investment experts regard Japan as a strong candidate for equities profits in 1996, and most note more broadly that investment in Asia has gotten relatively cheap over the past two years. High-yield, fixed-income investments are increasingly popular, especially for those who have seen heavy losses since 1993, and Asian bonds are quite attractive. Few investment managers are optimistic for the year, however, with most underweighting Singapore, Malaysia, and H and B shares in China.

Hong Kong's disreputable but successful Lau brothers seem to desire respect, but the property market establishment remains suspicious. Joseph Lau reportedly makes the decisions regarding their business empire, led by public company Chinese Estates Holdings, while Joseph deals with the press and institutional investors. Together they have proven that even in Hong Kong it is possible to build a commercial empire through the stockmarket rather than the big banks and other establishment power sources.