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asia pacificfoundation of canada3The Asia Pacific Foundation of Canada (APFC) is a national nonprofitorganization established by an Act of the Federal Parliamentin 1984. Its mandate is to bring together people and knowledge toprovide the most current and comprehensive research, analysis andinformation on Asia and on Canada’s transpacific relations. It promotesdialogue and debate on economic, political, social and developmentalissues to help shape effective Canadian public and private policy. It alsohouses the APEC Study Centre in Canada. A subsidiary of APFC, theGLOBE Foundation of Canada, organizes the GLOBE series ofinternational conferences and trade shows on business and theenvironment. Another subsidiary, the Canadian Education CentreNetwork, markets Canadian education services through its offices inAsia and Latin America.Asia Pacific Foundation of Canada666 - 999 Canada Place, Vancouver, BC, Canada V6C 3E1Tel: 604-684-5986 Fax: 604-681-1370E-mail: Internet:

The Asia Pacific Foundation of Canada5wishes to acknowledge the generous supportprovided by Canadian Pacific Limitedand Westcoast Energy Inc. which helped makeCanada Asia Review 1999 possible.

○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○CONTENTSINTRODUCTION1 : OVERVIEWDr. William G. Saywell 5canada at the asian crossroads 9canada asia report card 12the case against myanmar 162 : MAJOR EVENTSa year in review 23asia day-by-day 243 : THE IMPACT ON CANADAwhere does it hurt? 374 : DOING BUSINESS IN ASIAnew rules, same game 45corruption under attack 465 : REGIONAL SECURITY6 : EDUCATIONa dangerous neighbourhood 55asian crisis in our schools 63pacific port 647 : ASIA PACIFIC FOUNDATION OF CANADAthe newest challenge 71notes 75references 78appendix 81

introduction7It really was an extraordinary year. The toppling of a dictator in Indonesia; the arrestof an heir apparent in Malaysia; the inauguration of a former dissident as president ofSouth Korea; the devastation of unemployment and poverty for millions of Asians whohad shared, to some degree, in a decade of prosperity now bitterly and abruptly endedfor them. And the grip of the Asian flu began to bite in Canada — and bite hard in BritishColumbia. Even the politics of Asia whipped up a backlash in Canada, as the APECinquiry into police handling of student demonstrators simply would not leave the frontpages of the newspapers or the lead of the national TV news.Is the worst over? Has the recovery begun? If so, how quick, and more importantly, howsolid will recovery be? As 1998 ended, these were the questions most often asked of usat the Foundation. These, too, were the questions that engaged almost everyone inthe corridor talk at the APEC meetings in Kuala Lumpur last November. This was the issuethat continued to cast its shadow over global equity markets and motivated the call for anew international financial architecture.The Asian financial crisis that began with the devaluation of the Thai baht in the summerof 1997 had by early 1998 become a full-fledged economic disaster for much of EasternAsia. The focus of greatest human suffering was Indonesia. As the year ended, Indonesiaremained politically and socially the most volatile. But even there, signs of turnaroundwere appearing.In the region as a whole, we think the worst is probably over. But that modest degree ofconfidence must be qualified. Recovery will depend on the economies of Europe andthe US remaining strong and Japan getting its economy moving in the right direction.And even if 1999 sees the beginning of the turnaround, return to significant growth willbe gradual, uneven and full of uncertainty and risk.The key is Japan. Mired in a worsening economic environment for much of the past eightyears, consumer confidence has been shattered. It must be restored, because recoveryand any subsequent growth will be consumer, not export, driven. Unfortunately Japan’sdemo-graphics do not encourage long-term optimism. With population growth at zero or

marginally negative, Japan is the industrialized world’s most rapidly aging society and olderJapanese will be more anxious to save for their financial security rather than to spend.A return to robust and sustained growth in Japan is not around the corner. It will entailmore than putting the banking crisis behind it and providing even bigger stimulus packages.It will demand a fundamental and broadly based restructuring in the economy, societyand the political culture. We see little evidence that Japan’s leadership has the will toembrace such far-reaching change. At least not yet. In the longer run, those changes mustcome. When they do, Japan’s economy will recover its vitality, with a positive impact onthe rest of Asia.8The good news story throughout the year was China. In supporting the IMF bailouts,restructuring, resisting devaluation and maintaining strong economic growth, Beijingassumed a new kind of international leadership and obviously enjoyed the kudos itreceived for doing so. It did have to slow the pace of reform of its state enterprises andhousing system, yet it stuck to its overall reform agenda and allocated enormous sums toinfrastructure development to sustain growth near its 8% target. While the short-termfocus of Asia’s economic recovery is Japan, the longer-term concern must be China. Despiteits recent success, it faces enormous challenges with weakening consumer confidence, asick banking system, huge inventories, slowing foreign investment, pervasive corruptionand potential social unrest sparked by rising unemployment and economic inequity.As we went to press at the end of the year, our concern in terms of human suffering andpolitical instability remained Indonesia. Thailand and South Korea were showing signsthat their willingness to grapple with their fundamental economic problems was beginningto pay off. Malaysia’s recovery was very questionable, based as it was on the transitoryeffects of currency controls, and further challenged by the political uncertainties created bythe ouster of former Deputy Prime Minister Anwar Ibrahim.Uncertainty in Asia’s economies, violence in the streets of Jakarta and politicaldemonstrations in once-confident and comfortable Malaysia provided the backdrop forthe APEC meetings in Kuala Lumpur. Prime Minister Chretién’s refusal to meet as pastchair with Malaysian Prime Minister Mahathir Mohamad, and the high profile meetingof foreign minister Lloyd Axworthy and trade minister Sergio Marchi with Anwar’s wife,initially focused the APEC host’s scorn on Canada, until US Vice-President Al Gore went“over the top” in his call for reformasi and attracted the derision of Malaysian leaders andmost of Asia’s press.There was little to cheer about in terms of APEC advancing its central trade liberalizationagenda. The momentum generated by Canada’s 1997 leadership on Early VoluntarySectoral Liberalization could not be sustained as APEC moved that file into the WorldTrade Organization. Canada’s attempt to get civil society onto the agenda failed completely.Nor was anything concrete achieved on the front of tackling the Asian economic crisis. Yetwhile Gore’s rhetorical fireworks overshadowed the deliberations of the leaders, themeetings were extremely important for two reasons. They provided useful reaffirmationof the very solid work that is being done behind the scenes on an array of issues from tradefacilitation to economic and technical cooperation. Even more important is the fact that

leaders got together collectively and in a rash of bilateral meetings on the edges of APEC.If personal relationship building is key to confidence-building, the APEC forum has politicaland even security implications far beyond its stated agenda of economic cooperation.The 1998 meetings of APEC must have been at least anti-climactic and even downrightdiscouraging for Canadians. But it is very important that we stay fully engaged, for atthe end of the day APEC is not only an exceptionally important international forum inits own right, it is also the best institutional symbol of Canada’s commitment to playinga major role as an Asia-Pacific nation.The Asia Pacific Foundation of Canada faced its own financial challenges in 1998, andresponded to them by refocusing much of its work on policy-related research and analysis.It organized a number of roundtables across the country devoted to the Asian crisis andpolicy options for Canada. And it launched a new bi-monthly electronic publication,Canada Asia Commentary, to offer analysis of major issues which have emerged in Asia andin Canada’s relations with the region. The response has been extremely gratifying.9Asia’s crisis has discouraged some Canadians from staying engaged. Volatility itself weakenslong-term commitment and provokes instant and sometimes superficial response. In timesof uncertainty, there is an even greater need for sophisticated analysis, broad contextualunderstanding and a focus on our strategic interest. The Foundation, through publicationssuch as Canada Asia Review, is committed to help provide that analysis and understanding.Dr. William G. SaywellPresident and CEOAsia Pacific Foundation of Canada

Canadian businesses and governments must seizethis opportunity to strengthen long-termrelationships with Asia and resist policies which divertresources simply to exploit short-term gainsor popular causes elsewhere.

1OVERVIEWcanada at theasian crossroads11It is little more than 12 months since the end of Canada’s Year of Asia Pacific (CYAP)— a nationwide celebration of our transpacific links — and we should be riding on awave of enthusiasm for all things Asian. Culminating in the meeting of the leaders ofthe Asia Pacific Economic Cooperation (APEC) forum in Vancouver, CYAP was intendedto show the depth of our ties with Asia and the benefits they could bring to this country.With hindsight, the timing could not have been worse. Asia’s economies have plungedinto their deepest recession in decades, and the image of Asia among many Canadians isas low as it has ever been. The irony is that the events of 1998 have actually underscoredthe shallowness of our links with Asia, rather than their depth. Canada’s overall solideconomic performance came mostly because we are not heavily involved with theeconomies of Asia, but rather with the US. Our close integration with the strong USeconomy, which in 1998 absorbed around 85% of our exports, shielded most of Canadafrom the impact of the Asian collapse. Only British Columbia, which alone amongCanadian provinces depends as much on Asian markets as on those in the US, was hardhit by Asia’s troubles.The Canada Asia Report Card, on page 12, reflects the disappointing shallowness of ourlinks. This annual assessment of trends in our ties with Asia in 10 key areas, whilesubjective, is an attempt to focus attention on all the elements that make up ourtranspacific relationship. It purposely sets out to give weight to some of the less obviousinvolvements — it can set a declining trade against the Titanic efforts of Celine Dion ingaining recognition for Canada. This year we are again unable to award a top grade to anyof these elements, although in some areas — projection of Canadian values, developmentcooperation activities, inward investment flows and in security relations — we feel thecountry did better in 1998 than in the previous year. On the other hand, 1998 was lessthan a banner year for trade, not just because our Asian partners slumped into recession,but because of the lack of value-added exports which made the downturn worse than itcould have been. Overall, the mark for the year would be a C+, about the same as in1997, so we are at least holding our ground in difficult terrain.However, neither the cushioned impact of the Asian crisis on Canada, nor the steadygrade in our Report Card, are reasons for satisfaction or complacency. They are cause forgreat concern. The painful retrenchment and restructuring underway in East Asia will

○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○○ ○ ○ ○ ○ ○ ○ ○ ○ ○○ ○ ○ ○ ○ ○ ○ ○ ○ ○○ ○ ○ ○ ○ ○ ○ ○ ○○ ○ ○ ○ ○ ○ ○○ ○ ○○ ○○ ○○ ○○ ○○ ○○ ○○ ○○ ○○ ○CANADA’S TRADE WITH ASIA (C $BILLIONS)0 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30 32 34 36 38 40121988198919901991199219931994199519961997strengthen the potential of the region to be an engine of the world economy in theearly 21st century. Now is the best chance Canada has had in a decade to recover someof the ground lost in Asia, while we were restructuring our economy to take advantage ofNorth American free trade. Asian assets are relatively cheap and Asian businesses needtrade and investment partners. The door is open to establish or reaffirm the types oflong-term relationships on which most Asian business is — and will continue to be —based. Some of the financial ground rules for Asian firms doing business with foreignpartners are changing, under the rubric of “greater transparency.” However, thecultures of Asian countries, based on cooperative relationships, are not going to change(as explained in Chapter 4, New Rules, Same Game). Canadian businesses and governmentsmust seize this opportunity to strengthen long-term relationships with Asia and resistpolicies which divert resources simply to exploit short-term gains or popular causeselsewhere.One litmus test of long-term government policy is education. If Canada is to have thepeople with the knowledge to maintain an effective involvement with Asia in the nextfew decades, they must be trained in our schools and colleges now. Since the early 1990s,we have done a fairly good job at this. But other countries are doing much more(as explained in Chapter 6, Asian Crisis in Our Schools). And now schools, colleges anduniversities are being starved of funding for Asian courses as part of the overall squeeze oneducation funding. To use the Asian crisis as an excuse to do less than we have done inthe past is dangerously short-sighted.In at least one area, the coverage of Asia by media, the Asian downturn has led to at leasta short-term improvement. For once, Canadians were offered enough information to keepabreast of developments. After years of providing only superficial coverage, and thengenerally giving most prominence to stories of physical or human disaster, in 1998there was no shortage of Asian news in Canadian media. Of course, it was the economiccrisis, compounded by the genuinely dramatic developments surrounding the fall ofSuharto in Indonesia and the sacking and arrest of Anwar Ibrahim in Malaysia, thatdrove the news. Coverage, especially in newspapers, was extensive and, unlike previousyears, tended to follow the development of situations rather than just present snippetsof “headline journalism” out of context. Still, developments in Asia are complex and a

○ ○ ○ ○○ ○ ○ ○○ ○ ○ ○○ ○ ○ ○○ ○ ○ ○○ ○ ○ ○○ ○ ○○ ○ ○○ ○○ ○○ ○○ ○○ ○○ ○○ ○○ ○○ ○○ ○○ ○○ ○NINE-MONTH TRADE COMPARISON (C $BILLIONS)0 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30 32 34 36 38 4019971998Canadian Exports to AsiaCanadian Imports from AsiaSources: Statistics Canada. Exports by Country (Cat. No. 65-003) and Imports by Country (Cat. No. 65-006), 1988-1998.Notes: Canada's trade with Asia was calculated based on trade with the following economies: Bangladesh, Brunei,China, Hong Kong (SAR), India, Indonesia, Japan, Macau, Malaysia, Myanmar, Nepal, Pakistan, Papua New Guinea,Philippines, Singapore, South Korea, Sri Lanka, Taiwan, Thailand and Vietnam.13greater flow of information does not necessarily translate into greater understanding.It is unfortunate that many Canadians now carry images of an Asia in crisis, without everhaving been offered the background of past years’ positive achievement against which tobalance their judgments.There is a danger that, with most Asian countries facing long recoveries, business andpolicymakers will turn their backs on what were already difficult markets to break into.The fallout from the anti-APEC protests in Vancouver must give that tendency someappeal at a political level. What politician now would volunteer to campaign for increasedties through APEC or even with the organization itself? Sadly, the image of APEC withmost Canadians is now an obstacle to new initiatives. But APEC is not Asia, and the naggingpolitical problems that have spread out from the Vancouver meeting are very muchdomestic Canadian problems — issues of how Canadians deal with each other. These issuesmust not be allowed to sidetrack development of our role in Asia. Our partnership inAPEC is the most concrete official acknowledgement of Canada’s involvement withAsia and, despite all its weaknesses and frustrating procedures, the organization shouldbe at the centre of our economic ties with the region.With much of Asia at such low ebb, now is an opportune time for the government todemonstrate Canada’s “soft” power by developing stable, long-term policies which willproject Canada deeper into key areas of engagement with Asia, for the benefit of bothCanadians and Asians. For example, in the worst hit economy of Indonesia, there is anurgent need for the support of institutions able to provide for the welfare of the suddenlyswollen number of poor families in the country. Canada, both at home and in its overseasdevelopment assistance activities, has extensive experience in creating these types ofinstitutions. To an extent this effort has already started, and is reflected in the increasedgrade we have awarded in the Report Card category of “development cooperation.”Encouragement of strong civil society groups is another area open to enhanced Canadianinvolvement. Indonesia and Thailand — and, hopefully one day soon, Myanmar — mustdevelop the role of civil society to ensure that fledgling democratic systems are firmlybased. This is an area Canadians have told their leaders repeatedly — sometimes rathervocally — that we should be pursuing more actively in Asia. It is, in fact, a basic goal of

Canada Asia Report CardCanada 1998TradeCCanada’s exports to Asia in Jan.-Sept.1998 fell about one-third and share inmajor markets was down sharply, to just1% in first quarter. Though US dollarrose more against Asian currencies thanthe loonie, US exports to Asia fellonly half as much in percentage terms.Loss of market share results fromexcessive dependence on volatilecommodities. Trade promotion was againactive, led by the PM as well as severalprovincial premiers, who visited Asiancountries in 1998, but “Team Canada”does not simply need more trips. Newpolicies, new products and consistentfollow-up needed from business communityto restore trade - and grade.‘97Education and CultureB -Cultural exchange between Canada andAsia was subdued, though Celine Dionkept Canada’s image afloat. Ourreputation as a quality destination forinternational education remained intact,despite a fall in Asian students at alllevels. Visas issued to Asian studentsdropped 25% in first nine months, withbig declines in South Korea and Japan.India and China saw sharp increases.Continued strong interest in Canada asa place to study is reflected in highnumber of inquiries at Canadian EducationCentres throughout Asia. Fair result indifficult year.‘97TourismC‘97Arrivals from Asia fell 21% in Jan.-Sept. 1998 compared to 1997. South Korea(-60%) and Japan (-16%) accounted forabout half the decline. Increased USarrivals, attracted by cheap loonie,offset the loss. Asian crisis explainsmost of drop in Japanese arrivals, buthigh cost of package prices toCanada,compared to packages to US, alsoBChurt. Even with economic recovery, Canadamust be more aggressive in winning backmarket share. Canadian Tourism Commissionstuck to long-term strategy and led twomajor marketing drives targeted at Japanand four other Asian countries. Steadygrade rewards steady effort.Awareness Buildingin CanadaB‘97B -Hard to find legacies of Canada’s Yearof Asia Pacific awareness-building effortin 1997. Crisis in Asia, together withbad press surrounding Vancouver APECmeeting, made a poor impression. Challengeof creating an Asia-literate generationrequires consistent policies and longtermeffort to provide students witheducational resources on the region, notslogans and one-off events. News coverageof Asia Pacific issues was up in quantityand continuity, mostly because of badeconomic and political news,but broader,more nuanced media coverage needed ifgrade is to rise.B - C +Projection ofCanadian Values‘97B-Ottawa became more outspoken in supportof transparency, democracy, human rightsand civil society development. Itdenounced China’s treatment of democracyactivists, made a financial contributionto Asia Pacific People’s Assembly at KualaLumpur APEC meeting, and gave high-levelsupport to Malaysia’s sacked Deputy PrimeMinister, Anwar Ibrahim. Canada’s stancewas less ambiguous in 1998, and mayforeshadow return to a more activistapproach. Greater clarity and consistencyin foreign policy a virtue, but wordsmust be matched by understanding ofcomplexity of different nationaland cultural contexts, and willingnessto offer assistance. Still, earns animproved grade.

Security RelationsB -Canada’s “human security” agenda becamemore relevant in crisis-stricken Asia,with assistance to poverty alleviationin Indonesia, elections in Cambodia andnatural disasters in China and Bangladesh.In traditional security relations, Canadaimposed sanctions on India and Pakistanfor nuclear testing, contributed topeacebuilding elsewhere. Ottawa wasactive at ASEAN Regional Forum pursuinga resolution of Kashmir dispute.Annual Westploy program took Canadianships to South Korea, Russian Far East,Japan and China, before joiningmultinational RIMPAC exercises in Hawaii.Improved grade reflects greatervisibility on broad security issues inAsia, in a year where regional securityhas deteriorated sharply.‘97Development CooperationB -CIDA’s focus on institutional capacitybuilding and civil society, and use ofindigenous private-sector partners forprogram delivery, turned out to be wellconsideredand appropriate. Continuedfocus on these areas, plus shorter-termhumanitarian assistance, utilizesCanada’s expertise well. Focus isespecially needed as disbursements inAsia fell again in 1997-98. Aid budgetmay now have reached bottom, but demandsfrom politicians and public for efficientuse of aid are unlikely to subside.Canada’s assumption of Indonesia’s US$500 million commitment to Thailand’sIMF package was an adroit move that showedconcern in both countries for price ofone “bailout.” Good work.‘97Outward InvestmentDDirect investment in Asia rose about 3.5%in 1997 over 1996. While Asia’s share oftotal Canadian direct investment fellslightly, it was similar to decline byother investing countries. Most newforeign investment in Asia is in mergers-‘97Cand acquisitions with Canada playing asmall role relative to its globalinvestment activity. Wait-and-seeapproach by Canadian investors has beenprudent, but they should not waitindefinitely for potential acquisitionsin a field that can only get more crowded.Much more effort needed if grade is toimprove.‘97Inward InvestmentC -Direct investment from Asia rose 2% in1997, likely reflecting commitments madebefore crisis struck. Proportion of newinvestment in Canada from Asia fell,but by much less than decline globallyin Asian investment. Total inflow rose,led by US. Given link between trade andinvestment, Asian capital will likelycontribute to more resilient trade ties.While investment from Asia is unlikelyto soon return to pre-crisis level,investors in future will likely lookmore closely at mature and stabledestinations, such as Canada. Even undercurrent conditions, there is scope fortargeted investment promotion.‘97Canada’s Image in AsiaC + D +DBLittle happened to alter Canada’sgenerally favourable, if vague, profilein Asia. Bilateral business tiesdominated the news, with increasingreports of high-tech deals. Only inMalaysia and Hong Kong did social andpolitical issues in Canada gain muchattention - often critically -especially now-scrapped plan tointroduce language test for immigrants.The proposed asset reporting lawcontinued to draw unfavourable businesscomment in several countries. Canada’ssupport for Anwar in Malaysia was notedin Southeast Asia. In East Asia, economicissues, like China accusing Canada ofdumping newsprint, plus start-up of newCandu reactor in South Korea, gainedheadlines. No reason to change grade.B15CANADA ASIA REORT CARD

ASIA’S SHRINKING WEALTH (US $BILLIONS)CountriesIndonesiaMalaysiaPhilippinesSingaporeSouth KoreaThailandTotalValue of 1998 GDP(December 30, 1996 exchange rate)215.51103.1992.12103.43468.54173.561,156.35Value of 1998 GDP(December 31, 1998 exchange rate)63.6468.6762.0487.50331.15121.52734.5216our foreign policy under the general heading of “projection of Canadian values.” Supportfor the Human Rights Commission in Indonesia, for Non-Governmental Organizations(NGOs) there and in other parts of Southeast Asia, and for the democracy movementin Myanmar are already important activities in this field. However, the actions alreadytaken which boosted our assessment of this category in the Report Card were the overtCanadian opposition to the treatment of former Malaysian Deputy Prime Minister AnwarIbrahim, and condemnation of China’s treatment of democracy activists. These gesturesmarked a return of Canada to its traditional position of support for the freedom ofpolitical dissent. It contrasted sharply with the unfortunate image of Canada created inAsia the year before by scenes of police appearing to stifle dissent among their ownpeople at the APEC summit.A third area where Canada has a chance to enhance its Asian role is in internationalsecurity. In India and Pakistan especially, but throughout Asia generally, there is a needfor a government-level security dialogue among states that have built up a dangerousarray of modern weapons, but lack any formal regional channels for dispute settlement.Canada, which has no military or territorial involvement in the region, good relationswith virtually all the players, and a track record as a peacemaker, should take the initiativeand foster mutual confidence-building activities and a security dialogue. In the pastyear, Canada undertook a number of small steps to raise its involvement and visibility inAsian security affairs, earning a slightly improved grade in the Report Card. Not specificallyan Asian initiative, but one which certainly involves all Asian states, was the launch ofthe Ottawa Convention on the prohibition of land mines. It has come too late to be ofmuch help in Cambodia or Vietnam, which are littered with unexploded mines. Hopefully,one day soon, the situation in the Korean Peninsula will enable South Korea and the USto join the treaty and remove the millions of landmines strewn across the DemilitarizedZone between North and South Korea.Finally, finance minister Paul Martin is already pursuing changes in the architecture ofthe international financial system which would help repair, or at least moderate, theweaknesses that led to the financial panic which destroyed so many years of progress byAsia’s newly industrialized economies. While these changes are global rather than regionalin scope, they will likely have the greatest impact on Asia.

Source: IMF, Dow Jones, The Economist Intelligence Unit, Far Eastern Economic Review,Olsen & Associates Information System.Notes: Estimated 1998 GDPs for all countries are calculated using the 1998 growth rate andthe 1997 GDP. 1998 estimated growth rates, except Singapore and Thailand, were taken from theFar Eastern Economic Review, 14 January 1999. The growth rates for Singapore and Thailand weretaken from domestic news sources, January 1999. 1997 GDP for all countries, except Singapore,were taken from the IMF, International Financial Statistics Yearbook 1998. The GDP for Singaporewas taken from the EIU Country Report, 3rd quarter 1998. Exchange rates are taken from 1999Olsen & Associates Information System figures as quoted by OANDA Inc. on the website Classic 164Currency Converter.17THE CANADIAN FALLOUTOverall, Canada has not been severely affected by the Asian collapse. Because of therelatively small proportion of our trade that goes to Asia, the loss of Asian exports in1998 was equivalent to only about 0.8% of our GDP (as detailed in Chapter 3, WhereDoes It Hurt?). Then there were other Asia-related factors at work, like the fall in thevalue of the Canadian dollar, which helped our exports in other markets, furthersoftening the economic impact of the crisis. Tourism also received a boost from thelower loonie, with visitors from our main market, the US, up strongly. Not surprisingly,arrivals from most Asian countries were down significantly, the 16% slump in thenumber of Japanese tourists in the first nine months causing the most pain. Internationaleducation was also hit by the downturn and by the rise, in terms of most Asian currencies,of the Canadian dollar. The total number of student visas issued in Asia was downsharply. However, inquiries at most Canadian Education Centres in Asia remainedstrong, suggesting that there is a pent-up demand to study in Canada once economicconditions improve.While Canada generally shrugged off the downturn, the story was different in BritishColumbia, where the loss of trade was close to 2.6% of its provincial product, throwingthe BC economy into recession (made worse, local critics would argue, by a slump indomestic investment aggravated by provincial policies). Despite the limited overallimpact of export losses, Canada’s trading performance with Asia has actually beenvery disappointing. Our total merchandise exports to Asia were down 33% in the firstnine months of the year compared with a year earlier. When combined with a 15% risein imports, total trade with Asia shrank 5%. Of greatest concern, our combined sharein Canada’s top 11 Asian markets 1 shrank by a third between the first quarter of 1997and the first quarter of last year (accelerating a slide which began in 1989). In contrast,the US, which has a much greater proportion of its trade across the Pacific and whosecurrency has appreciated against Asian currencies more than the loonie, saw its Asianexports fall only 16% over the same nine months of 1998. The reason for the relativelypoor performance by Canada is not hard to discover: our trade with Asia relies veryheavily on shipments of raw and semi-processed products. In 1996, the year before thecrisis hit, 70% of Canada’s exports to Asia were commodities. In our trade with the rest of

the world, commodities made up less than 20% of the total. As others have noted before,in its trade with Asia, Canada is a First World country shipping Third World products.18The high commodity content of our Asian trade reflects a good match between Canada’srich natural resource endowment and the needs of Asian economies. But it leaves usextremely exposed to economic downturns. When industry slows, demand for raw materialsfalls sharply as manufacturers cut production and run down inventories, prices drop, andhigher-cost producers are the first to lose markets. That is what has happened toCanada. The prices of Canada’s main export commodities, measured in US dollars, fellabout 11% over the year to the end of September, 2 yet the loss of Asian exports, measured byvalue, is more than double that. Our shrinking market share is clear evidence that we arelosing out to other suppliers. As long as Canada fails to diversify its Asian exports intomanufactured goods, especially branded products, which are less vulnerable to economicfluctuations, our trade with Asia will remain hostage to sharp downturns.An especially worrying aspect of this reliance on commodities is that our exports toJapan, by far our largest market in the region, are even more concentrated on rawmaterials than elsewhere. They represented 87% of our shipments in 1996, just beforeJapan’s slide into recession began. As Japan takes almost half of all our exports to Asia,the loss of more than a quarter of our sales there in the first nine months of 1998 was amajor setback. As discussed in Chapter 2 (A Year in Review), Japan’s economic problemsare very serious and will not be resolved quickly. It is most unlikely that sustained, longtermrecovery of Japan’s economy, and in our exports to that country, will come untilJapan undertakes major structural changes, although there may be a short-lived pick-upTHE CASE AGAINST MYANMARDuring the past year, confrontation between the military government of Myanmar and the “opposition”National League for Democracy (NLD), led by Nobel Prize winner Aung San Suu Kyi, has grown moreintense. Although Canada is responding to the worsening situation, our actions have exposed whatsome claim is a dual standard in our relations with non-democratic Asian regimes. In late 1997, theCanadian government tightened restrictions on economic ties with Burma (as the NLD calls thecountry) because of the regime’s continued repression of human and political rights, its refusal tobegin a dialogue with the NLD, and its toleration of a huge illegal drug trade. At the same time,critics in Canada challenge our government for its efforts to deepen economic and other ties withChina, which also resists democratic development. In fact, Canada’s policy toward Burma may bequestioned for not having gone far enough, but the claim that it has applied a different standardtoward China is unwarranted.Burma and China are among the four countries in Asia that do not meet the minimum standard ofpolitical and human rights accepted by most Canadians. Indonesia and North Korea are in the samecategory, though changes underway in Indonesia since the departure of Suharto hopefully will removethat country from the list. North Korea, the most repressive of all, is rarely mentioned in this contextin Canada, probably because Ottawa has no formal relations with Pyongyang, hence little ability toinfluence that country’s policies. In addition, the extent of political repression in North Korea ishidden behind a wall of isolation, which has been breached in the past few years only by efforts toovercome its chronic famine. Today, most human rights critics focus their attention on Canada’s positionon Burma and China.

within the next year or so. If Canada hopes to even regain its pre-crisis level of Asianexports, we will have to look for growth in other markets. Southeast Asia is likely tobegin growing again late this year, and offers considerable promise, but all its marketscombined are simply too small to offset the setback we have suffered in Japan. The onlymarket with the size to offset the losses in Japan is China, now our second-largestAsian trading partner.The Government of Canada has paid considerable attention to developing economic tieswith China. It was the target of the first Team Canada mission in 1996, led by PrimeMinister Chretién. This has since been followed by several more missions led by ministersand by provincial premiers, and was reinforced by another visit by the prime minister lastNovember. This attention has yielded some commercial rewards. Last year, as our exportsto all other major Asian markets tumbled, our market share in China remained virtuallysteady — an achievement of some note in a year in which China’s imports declinedabout 1.5%. (More spectacular were our increased imports from China, up 21% in thefirst nine months of the year.) However, a strategy of focusing on China requires somecaution. While China has remained the one centre of strong growth in Asia, it facesconsiderable domestic challenges of its own, which may dampen its growth in the nextfew years (as outlined in Chapter 2, A Year in Review). In fact, there must even be somedoubt about its claimed 7.8% GNP growth in 1998. A target of 8% was set at the start ofthe year and by mid-year this had become a major political goal. Even Chinese governmentsources have conceded that some local officials have likely reported inflated figures towin political favour. Casting further doubt on the official figure is the very small growthin electricity consumption — up only 2.5% in the first 11 months — which in most19The case against Burma is clear-cut. The State Peace and Development Council (SPDC, formerly SLORC)government has no moral claim to legitimacy. In 1990 the military regime that seized power two yearsearlier sought to legitimize its rule by holding democratic elections. Much to the military’s surprise,the NLD won an overwhelming 80% of seats in the national assembly. However, the regime refused toallow the parliament to meet and has since held on to power by force. Western countries have repeatedlycondemned the suppression of the NLD; the long period of house arrest imposed on Aung San SuuKyi; the detention of many of the elected NLD representatives; and the harsh treatment of NLD supportersand minority ethnic groups. Canada suspended bilateral aid to Burma in 1988, after the militaryseized power, and has subsequently withdrawn diplomatic representation from Rangoon, and haltedfinancial support for Canadian firms doing business in the country. Despite repeated calls by Ottawafor dialogue on political reform, the SPDC junta has refused to discuss its treatment of democraticopponents. In August 1997, Ottawa escalated its pressure against SPDC, coming into line with theUS and the European Union by removing tariff preferences from Burmese goods entering Canada,requiring export permits for shipments to that country and “urging” Canadian companies not to investthere. 1 The next step would be a formal embargo on investment.Human rights critics in Canada support the progressive isolation of Burma but question Ottawa’s policyof “constructive engagement” with China. The case against China in simplistic terms seems as clearas that against Burma: Beijing maintains a non-democratic political system, in which freedom ofspeech is limited, and those who openly challenge the political monopoly of the Communist Party arearbitrarily and often harshly punished. There are other charges in which the issues — widespread use

countries closely tracks the level of economic activity. If the economy is really growingmore slowly than claimed, it will magnify the impact of the problems of deflation andexcess production now facing economic managers in Beijing. This, in turn, will make itharder for Canadian exporters to build new markets there.20On the other hand, reforms underway in China, notably in the housing sector and to stateownedenterprises (SOEs), will open up new trade and investment opportunities. Canadianhousing products and technologies are a promising area for involvement in what Chineseplanners see as a major growth engine for the economy. Canadian know-how in energyefficientcold-climate construction is one advantage that can be exploited. Still, Canadianmethods of wood-frame construction are largely unknown in China, so entry into theindustry will involve considerable market development. So far, China has been aninsignificant market for these products. Many years of effort were poured into Japan beforehousing products became the export success story of the mid-1990s. The same effort willbe needed in China.APEC’S MALAYSIAN MALAISEIf Asia is to recover successfully from its recession, a progressively more open internationaltrading environment, which underpinned its earlier rapid economic growth, must bemaintained. APEC is the institutional commitment to this regional trade liberalizationso, after the expectations of rapid progress that came with the 1997 APEC Leaders’Meeting in Vancouver, November’s meeting in Kuala Lumpur was a disappointment.The major themes of Vancouver made little progress in 1998. Early Voluntary Sectoralof capital punishment, forced labour in prisons, persecution of religious minorities, the forcedincorporation of Tibet — are less clear-cut. However, there is no question about the restriction onfreedom of political activity, as Canadians recognize it.Critics claim Canada’s approach of expanding economic ties with China while maintaining a dialogueon human rights is ineffective, and that suppression of political rights and heavy-handed persecutionof political dissidents continues. Unquestionably human rights abuses persist. However, it is alsoundeniable that the welfare and freedom in everyday life enjoyed by Chinese citizens has improvedimmeasurably in the past 20 years. Development of a relatively unrestricted market economy as themeans toward economic modernization is the mantra of the state. This means Chinese workers havegained considerable freedom in choosing where they live, work and send their children to school. Aslow transition is underway from the arbitrary rule of the government to the rule of law, again drivenby the needs of a modern economy. There is considerable freedom of speech, and a proliferation ofcompeting channels for expressing opinions, except in areas which directly challenge the rule of theCommunist Party. Public officials are becoming more accountable — at the lowest township level theyare now elected — in part as a way of controlling rampant corruption. Economic modernization, fuelledby foreign trade and investment, is bringing about improved human rights and greater freedom inChina. The change is not fast enough for many people, not least those Chinese suffering for theirpolitical activities. In early 1998, China signed the International Covenant on Economic, Social andCultural Rights and late in the year the International Covenant on Civil and Political Rights — thoughit appeared to ignore these by continuing to arrest people who tried to form an opposition politicalgroup. Beijing is also willing to discuss its human rights situation, most notably at the Canada-ChinaSymposium on human rights held in Harrison Hot Springs, BC in March 1998. 2

Liberalization (EVSL) of eight of nine trading categories was handed off to the WorldTrade Organization to deal with; the engagement of civil society was too much of a hotpotato, with demonstrators on the streets of Jakarta and Kuala Lumpur; and coordinatedinfrastructure planning for countries deep in crisis seemed like a priority from anotherera. Just as disappointing, there was no real commitment to dealing with the Asian crisisbeyond an inclination to look to regional rather than global solutions. It would beeasy to blame the lack of progress on the effects of the crisis, or even on the Malaysianhosts who were distracted by their own economic and political problems. However,APEC’s malaise is more deeply rooted. It has to do with the structure and processes ofthe organization.The APEC emerging from Kuala Lumpur is an institution with diminishing importanceto trade liberalization, limited relevance to the Asian crisis, continuing isolation fromthe many real concerns of civil society, and is showing signs of incipient subregionalism(for example the US $30 billion Miyazawa Fund made available for Asian economies incrisis). This could provoke questions about Canada’s continued participation in thegrouping, though that would be a wrong and short-sighted response. APEC has providedCanada with the opportunity to demonstrate its credentials as a bona fide member ofthe Pacific community. Despite CYAP and hosting APEC in 1997, our role is by no meansself-evident in Asia, or, for that matter, in Canada. It is to Canada’s long-term benefit todemonstrate our commitment to the region — economically, politically and strategically.APEC, for all its flaws, remains the only intergovernmental forum that gives us the chanceto do this and to influence economic developments in the region.21Improving personal freedoms and dialogue on human rights is clearly not the case with Burma. Skepticsmight counter that, because of our economic interests, our position on China would be just as soft,even if its human rights and democratization record were as grim as that of Burma. Fortunately, this isnot a choice we have to make. China’s progress in these areas is as real as Burma’s intransigence. Themore important question is why we are not doing more about the latter.One factor holding Canada back from going further in its sanctions has been the unwillingness ofother Southeast Asian countries to cooperate. Members of the Association of Southeast Asian Nations(ASEAN), which Burma joined in 1997, have long maintained a policy of non-intervention in theaffairs of their partners. Without the cooperation of ASEAN members Thailand and Singapore, a tradeembargo would be ineffective and an investment embargo would be weakened. However, with thepolitical changes in Indonesia, and new governments in Thailand and the Philippines that seem morewilling to speak out on gross human rights abuses, the time may have come for concerted actionagainst the SPDC regime. Pressure on an issue such as this may persuade ASEAN to examine its ownpolicy of non-intervention — and look again at Burma’s membership in the grouping. Canada hasalways been at the forefront of moves to combat human rights abuses worldwide. Ottawa can againdemonstrate that leadership by calling for an international embargo on investment, as requested bythe NLD, to further pressure the undemocratic rulers of Burma into dialogue. Canadian companiesplay a very small role in investment in Burma. But neither did Canada have landmines in place aroundthe world when we called for a treaty outlawing the use of landmines. Just as we used moral, ratherthan military, strength to achieve the landmines convention, we can use our moral, rather thanfinancial, capital against Burma.

22The best place to begin applying this commitment is in reform of APEC itself. Consensusdecisionmaking and voluntarism, the unique processes of APEC, are not suited to tradeliberalization, especially when a new negotiating round of the World Trade Organizationis about to start. Other parts of APEC’s agenda are better suited to the consensusapproach, for example trade facilitation and economic and technical cooperation (Ecotech).APEC’s working groups have built a body of good work in trade facilitation that rarelygains public attention. Even the EVSL initiative, while failing on the trade liberalizationfront, was able to yield an agreement on trade facilitation and Ecotech covering all nineof the EVSL sectors. APEC must also begin a dialogue with civil society about concerns ona whole range of non-economic impacts of its agenda, not just human rights. WhetherAPEC focuses on trade liberalization or on Ecotech, these are issues that must involveparticipation from non-government players.One reason why trade facilitation and Ecotech do not receive the attention they deserveis that the media is naturally drawn to the annual Leaders’ Meetings. If so many nationalleaders give up their time to meet, something important must “happen,” so each meetingcreates new pressure to deliver “spectaculars.” Even when sound proposals come outof these meetings, APEC does not have the institutional resources to back them up orto follow through. The same applies to the procession of ministerial meetings that areconvened each year. It was inevitable that after several years of this, the expectations gaphas grown into the yawning chasm noted by so many observers.It may be difficult to convince future hosts to cut back the size of the APEC project.This would mean giving much less emphasis to top-level meetings, perhaps making theshowpiece Leaders’ Meetings less frequent, with more resources and authority given toa central secretariat. With New Zealand now in the chair, to be followed by Brunei, thereis an opportunity for Canada to push for a reworking of the structure of APEC withoutnational rivalries or power relationships overshadowing the process. The confluence ofinterests and passions between New Zealand and Canada are extensive, and it may be along time again before some sensible reform of APEC can be initiated. It will be atragedy if the political pain inflicted on the government by the inquiry into the RCMP’shandling of APEC demonstrators predisposes Ottawa to adopt a low-key approach tothe organization. 3TO BUY OR NOT TO BUYOne aspect of the Asian crisis which opens an opportunity for Canada is the sharp fall inasset values and liberalization of foreign investment controls in South Korea, Thailandand Indonesia. The focus of Canadian economic relations with Asia has always been ontrade. The total stock of Canadian investment in Asia, officially $16 billion at the end of1997, rose strongly in the first half of the 1990s but has since plateaued. The downturnoffers the chance for companies to buy into sound but cash-starved operations, makingup for opportunities missed earlier. A number of large Canadian companies have alreadymade their move: Bell Canada International, Abitibi Consolidated and Seagram Co. havemade purchases in South Korea, Thailand and China, while Newbridge bought intooperations in Indonesia. Each of these investments was undertaken by a company familiar

with the markets and business practices in Asia. This is important, as the ways of doingbusiness in Asia are very different from those of North America, and always present achallenge to would-be investors. During a time of crisis, when takeovers or partnershipsare probably an unwelcome option for the sellers, there is an added element of resentment.The deals in Asia are not just for the multinationals. Smaller companies that alreadyknow their way around Asian business will find attractive assets on the market. For thosenot already familiar with Asian conditions, the degree of openness to outside help makesit a great time to learn how business is done in Asia, even if a degree of caution is calledfor before making an initial investment.Much has been written about the changes that must take place in Asian business practicesto bring about the return of foreign confidence and capital. Undoubtedly there will bechange. Recovery will involve extensive regulatory reforms, bank recapitalization andcorporate restructuring — the IMF insists on it in the countries it has assisted. And therewill, over time, be greater transparency in the way business is done. Foreign lenders andinvestors can demand it, at least while Asia is a buyer’s market. But (as explained inChapter 4, New Rules, Same Game), the changes generally will not be as sweeping as manyWestern analysts suppose, and will certainly be slow in coming. The closed style ofbusiness, and the deals done on a handshake in most Asian countries are deeply rootedin their cultures. While investors today can bargain in Asia from a position of strength,they are still playing on foreign fields. Yet the changing business environment offersan opportunity for Canadian firms, long seen as laggards compared to their OECDcounterparts, to compete on a more level playing field. 423Meanwhile, Asian investors still see value in increasing their Canadian stake. While dataon inward investment is always a little dated, during 1997, which covered the first fivemonths of the Asian collapse, there was a small increase in Asian direct investment inCanada. Relative to other destinations for Asian capital, Canada fared quite well.Consequently, we have raised the rather low grade for this category in the Report Card.The Asian crisis has meant a huge loss of face, and of wealth, for Asia. The confidence,even hubris, that marked some Asian business and political leaders in the years immediatelybefore 1997 has been replaced by a grim resignation on the part of some, deep resentmentby others. But a common factor is the openness to outside assistance. Canada can showits commitment to enhancing its role in Asia by developing sound, long-term policyinitiatives that serve both Asian and Canadian interests. Canada, in both its businessand official relations with Asia, has an unfortunate reputation for frequently changing itsmind. Much greater care and consideration is called for now in developing strategy ifthe benefits are to be long-term. Politically motivated reactions that play to a Canadianaudience will only undermine our ability to influence events in Asia. The Asian crisishas shown up the shallowness of our Asian ties, but it also offers the chance to becomeinvolved over a much broader front than exists today. We should not miss this opportunity.

It is likely that the Japanese government willmeander along until a new generation of voters,and a much less accommodating worldtrading system, force them to undertakefundamental changes.

2MAJOR EVENTSa year in review25If 1997 is remembered as the Year of the Asian Financial Crisis, 1998 will be the Year ofthe Japanese Banking Crisis. While events in Indonesia, with the fall of PresidentSuharto, escalating political demonstrations and anti-Chinese riots, grabbed theheadlines, the crumbling Japanese banking system had the most serious impact on therest of the world. Other countries had their turn in the spotlight, too. South Korea beganthe year in crisis, but after a tense month of negotiations with international lenders, itsdebts were rescheduled and the government began the painful task of reforming itsbanking and corporate structure. Thailand moved ahead slowly, prodded by the IMF, totry to clean up the mess left by the implosion of its financial sector, but as the year wenton the government found Thai democracy standing in the way of some of the neededchanges. In Malaysia, political drama overshadowed a spectacular about-face on economicpolicy when Anwar Ibrahim, long-time heir apparent to Prime Minister Dr. MahathirMohamad, was sacked, then arrested, then put on trial. This somewhat diverted attentionfrom the APEC Leaders’ Meeting held in Kuala Lumpur, which turned out to be anunspectacular event. Hong Kong, having moved from British to Chinese sovereignty,briefly but dramatically broke from its traditional non-interventionist economic policy ina bid to punish currency speculators. In South Asia, India and Pakistan raised the stakesin their decades-long enmity by each testing nuclear weapons, while North Korea scaredJapan with the test of a multi-stage ballistic missile over its territory. And in Myanmar,the military government tried to change its repressive image by changing its namefrom SLORC to SPDC, but fooled no one.Seemingly aloof from, yet very much part of the economic crisis was China, whichpressed ahead with major economic reforms under a stable and confident leadership andconfounded almost everyone by apparently maintaining its rapid economic growth. Butthe defining events of the year were in Japan. Tokyo finally took some action to avertthe collapse of its banking system, which, if it had happened, would topple the worldeconomy into a deep recession. Belated but finally decisive action by the Japanese,along with some help from the US Federal Reserve and the major central banks of Europe,headed off the immediate possibility of a global financial collapse. However, Japan’sproblems are far from over.

JAPAN’S ANXIETY ATTACKJapan’s banks have been carrying a mountain of bad debts since the “bubble economy”of wildly inflated asset values ended in 1990 with a collapse in land prices. Othercountries have faced banking crises when property booms have turned to busts, but nonehas had the degree of vulnerability to property as Japan’s banks. And no other major countryhas allowed the hemorrhaging by its banks to go on for so long. The peculiar role of landin the Japanese financial system is the explanation.26Since the US Occupation ended in 1952, bureaucrats in the Ministry of Finance (MOF),rather than the elected government, have run Japan’s economy. A fundamental elementof their policy has been to collectivize losses — an extension to economic managementof some fundamental Japanese cultural traits — which has had the paradoxical effect ofreducing the risks in individual firms’ decisions while increasing the exposure of thewhole economic system. The MOF’s opaque accounting rules have enabled banks, andother companies, to hide financial problems by arbitrarily revaluing parts of their holdingsof land and stocks in line with market conditions rather than by following a consistentsystem of prudential regulation. When Japan’s economy was growing strongly, this systemof using market valuations to generate unrealized gains as a cushion against adversityworked well enough, but it developed in Japanese banks a dependence on latent profitsfrom rising prices of land and stocks to boost their shareholders’ capital, rather than buildingup capital from retained profits. This was accepted by their regulators in the MOF, withthe implicit understanding that the bureaucrats would always bail out any bank that raninto trouble. It was this understanding, along with a host of other enticements, that hasASIA DAY-BY-DAYDECEMBER 199701/ Finance officials from 14 Asia-Pacific countries02 meet in Kuala Lumpur to discuss bailout fundto supplement IMF aid to Asian economies.01/ Representatives from 160 nations met in Kyoto10 to discuss global warming.03 IMF agrees to US $57 billion bailout packagefor South Korea.05 Thais celebrate King Bhumibol Adulyadej’s70th birthday.08 Jenny Shipley is sworn in as New Zealand’sfirst female prime minister.09 North and South Korea, China and US meetin Geneva to discuss peace treaty to replace1953 Korean armistice agreement.10 South Korea unveils plan to stabilizefinancial markets.15/ First summit between China, Japan, South16 Korea and ASEAN countries held in KualaLumpur. China and ASEAN pledge “toresolve their disputes in the South China Seathrough friendly consultations.”17 Japan announces US $76.6 billion package,the third in three months, to boost ailingeconomy.18 Former dissident Kim Dae Jung electedpresident of South Korea.28/ 1.3 million chickens killed in Hong Kong in30 bid to end outbreak of avian flu.31 Mohammad Rafiq Tarar elected Pakistan’sninth president.JANUARY 199802 Malaysia threatens to repatriate two millionIndonesian workers.05 South Korean President-elect Kim Dae Jungsays he will make it easier for firms to lay offworkers.06 President Suharto delivers budget that ignores

encouraged depositors to pour their money into the banks, making the Japanese theworld champion savers and providing funds for the bureaucrats to channel into developingJapan’s formidable export industries. 1When the bubble economy burst, the bureaucrats tried to help the banks. For much ofthe 1990s, the MOF applied its standard cure — spurts of capital spending totalling aboutUS $600 billion — to try to reinvigorate the economy, but without long-term success.The bureaucrats had lost control of land prices and their ability to protect the banks,though they did not realize or were unwilling to admit this until last year, perhaps forfear that they would be blamed for the crisis the country was facing. 2After 1990, companies that borrowed heavily to buy property at inflated prices could notearn sufficient profits to cover their debts, and faced bankruptcy if they sold assets atheavily devalued prices. Knowing this, the banks in most cases did not call in theseloans, and often kept on lending to the debtors in the belief that the economy wouldrecover. The banks were not particularly perturbed because they had always followedMOF instructions, and believed the bureaucrats would again come to their rescue. It wasonly at the start of last year, when the MOF acknowledged bad and doubtful debts werea massive US $577 billion, that they appeared to realize the ministry could not bail themout. The banks began a serious attempt to improve their balance sheets by calling inloans and cutting back on new lending. In the first four months of 1998, bank loans fellby 12 trillion yen (US $93 billion). 3 This had a domino effect. Companies had to sellshares, often in affiliated firms, to raise funds to repay loans, forcing down the stockmarket, which further depressed the value of bank assets and of bank shares. At the same27structural adjustment conditions required byIMF in emergency support package.07 Indonesian rupiah falls 30% against theUS dollar.12 Peregrine Investments, Hong Kong’s largestinvestment bank, files for liquidation.13 Japan says problem bank loans at Sept. 30,1997 total US $577 billion, nearly tripleprevious estimates.15 President Suharto announces new IMFpackage, halts 15 infrastructure projects.15 Prime ministers of India, Pakistan andBangladesh meet in Dhaka to discuss trade.20 China offers to begin unconditional talks onrelationship with Taiwan.21 President Suharto says he will seek re-electionand hints at B.J. Habibie as running mate.27 Indonesia guarantees commercial bankobligations, freezes debt payments.29 South Korea’s creditors meeting in New Yorkagree to restructure bank debt.30 Thailand removes most foreign exchangecontrols imposed in May, 1997.FEBRUARY02 Australia begins constitutional convention todebate abandoning the monarchy in favourof a republic.06 South Korean union, business, governmentleaders strike deal allowing widespread layoffs.07 18th Winter Olympics open in Nagano, Japan.07/ Riots break out in Indonesia, protesting rising30 cost of food as a result of the currency crisis;sporadic looting targets ethnic Chinese.09 Thai farmers march on Bangkok, demandingmore government aid.12 Indonesia says it will set up a currency board.16 Vietnam cuts value of the dong by about 5%as part of gradual devaluation.

time, the dearth of new bank lending hit industry hard, as banks are by far the mainsource of Japanese corporate funds. In Japan, 79% of corporate debt is to banks, comparedwith only 31% in the United States. 4 As a result, the credit crunch put a stranglehold onthe economy.28Japanese consumers lost faith in the government’s ability to rescue the economy wellbefore the banks did and, taking the April 1, 1997 increase (from 3% to 5%) in theconsumption tax as a starting signal, cut back on their spending. The collapse in late 1997of Hokkaido Takushoku, one of the country’s top 20 banks, and of Yamaichi Securities,one of the Big Four brokerage houses, only reinforced the average Japanese worker’sfear for the future. As 1998 began, unemployment was climbing.With bank credit drying up and consumer spending shrinking, the economy slipped intorecession (the government is now forecasting that over the year it will shrink by 2.2%).As Japan is the second-largest economy in the world, its problems naturally had animpact on the rest of the world. A collapse by a major Japanese bank could set off a chainreaction leading to a global recession, caused by a sudden contraction in credit as bankseverywhere became overly cautious about protecting their own interests. Foreigngovernments urged Tokyo to act. However, the MOF was in disarray because of internalbribery scandals and the government seemed to lack the will to take action. Finally, proddedheavily by the US, the Liberal Democratic Party (LDP) government, then led by RyutaroHashimoto, in March and April followed the old MOF prescription of pump-priminginjections of funds into the banks and the economy, but to no avail. Neither domesticnor foreign opinion believed this would solve the problem, with the result that on June20 Japan announces fourth set of policy reformssince October, designed to solve financialsystem problems.25 Kim Dae Jung sworn in as South Korea’spresident.MARCH04 Thousands of Indonesian students stagepeaceful protest calling for PresidentSuharto’s resignation.05 Chinese Prime Minister Li Peng steps downand is replaced by Zhu Rongji.10 IMF threatens to freeze US $40 billion bailoutpackage if Jakarta does not comply with IMFplan; Indonesia’s Peoples ConsultativeAssembly re-elects Suharto for seventh fiveyearterm as president.11 Science and Technology Minister B.J. Habibieelected Indonesia’s vice-president.16 Japan’s cabinet approves cash infusion of1.42 trillion yen (US $10.95 billion) to bailout 17 banks and restore stability toJapanese financial system.16 China’s National People’s Congress re-electsJiang Zemin head of state for five more years.20 Coalition Indian government led by theBharatiya Janata Party and headed by A.B.Vajpayee takes office following nationalelections in early March.20 Thai Prime Minister Chuan Leekpai defeatsparliamentary vote of no confidence.20 Indonesia drops plan to implement currencyboard system.26 Eight Indonesians die at Malaysian detentioncamps in riots over deportation.27 South Korea announces US $2 billion bondissue, raised to US $3 billion because of oversubscription.30 Prince Norodom Ranariddh, former joint

12 the yen fell to an eight-year low of 144.75 to a US dollar. This set off alarm bells allover the world. Even China warned publicly of the pressures on its own currency becauseof the tumbling yen. Five days later the US entered the foreign exchange markets tosupport the yen, pushing it up from 142 to 137 yen to the dollar within minutes. Tokyoalso gave in to US pressure and announced plans to set up a government “bridge bank”to take over the problem debts of the private banks so they could resume lending tosound clients. This was a highly controversial move as there was strong public oppositionto the use of public funds to bail out private banks.The Japanese public, which had already shown its lack of confidence with its consumerstrike, was more explicit with the government in July elections for the upper house ofthe Diet. The LDP suffered a major loss of support, leaving it with only 103 seats inthe 252-seat chamber. Prime Minister Hashimoto resigned to take responsibility for thesetback and was replaced by another veteran party leader, Keizo Obuchi. Lacking amajority in the upper house, the government was forced to negotiate with oppositionparties which insisted that if public money was to be used to bail out banks, thegovernment should nationalize those involved. While the LDP and opposition partiesfaced off, the situation in the economy grew more serious, as banks called in their loans.Unemployment was approaching the highest level in 50 years, and major companies suchas Hitachi and Nissan were forced into massive restructuring. By October 20, a nationwidepublic-opinion survey showed support for the government had dropped to 17% andthat 70% of the public was concerned about future unemployment — an amazinglevel of insecurity in a country in which just a few years ago, lifetime employmentwas the norm. 529APRILprime minister, returns to Cambodia, endingnine months in exile, after receiving royalpardon for complicity in coup attempt.03/ 25 European, Asian Leaders meet in London04 for second Asia-Europe Meeting (ASEM).05 Singapore says US $3 billion of US $5 billioncommitment to Indonesia will support tradefinancing through Singaporean banks.06 Pakistan tests medium-range missile capableof carrying nuclear warhead.07 Labour unrest breaks out at Australia’s portsas 1,400 unionized workers are fired andreplaced by non-union workers.08 South Korea says it will open 42 industrysectors previously closed to foreigninvestment.09 Japanese Prime Minister Ryutaro Hashimotoannounces 4 trillion yen income tax cut toboost consumer spending, plus 10 trillionyen in new government spending.10 IMF and Indonesia sign new agreement oneconomic restructuring.10 RHB Bank of Malaysia takes over failedSime Bank.11/ North and South Korea meet in Beijing in13 abortive peace talks.15 Former Khmer Rouge leader Pol Pot dies.19 South Korean unionists march on Seoul toprotest layoffs by big businesses.MAY06 Court orders 1,400 sacked Australian dockworkers reinstated.11 Filipinos vote in presidential election whichJoseph Estrada wins easily.11/ India tests five nuclear warheads in the13 Rajasthan desert.

The LDP and opposition parties finally agreed on a plan to nationalize and recapitalizeLong Term Credit Bank (LTCB) and Nippon Credit Bank, the most seriously weakenedof the major banks, and provide additional funding for other endangered banks — whichresisted asking for help for fear that they, too, would suffer the same fate as LTCB. Butat least the policies and funds were in place to undertake a credible holding action toprevent the banks from becoming weaker and to reverse, for the time being, the savagecredit squeeze applied by the banks.30The underlying causes of the problem are the complex mix of market and non-marketpressures that have left the Japanese financial system vulnerable, and over capacity inindustry which can only be supported by excessive exports. Any change to this system,which would take years, would entail a fundamental shift of power away from theMOF specifically and the bureaucracy generally, resulting in the government runningthe bureaucracy rather than the bureaucracy running the government. It is hard to seethis happening anytime soon with the array of political and vested interests that havedeveloped in Japan over the past 47 years. It is more likely that the government willmeander along until a new generation of voters, and a much less accommodating worldtrading system, force these changes. In the meantime, such influential Japaneseprivate-sector think tanks as the Nomura Research Institute and the Daiwa ResearchInstitute see no indications of an improvement in the near future and predict thatthe Japanese economy will register negative growth again this year. As our secondlargestmarket, the implications for Canada of a chronically ailing Japanese economy aredisturbing. At the very least, it calls for strategic policymaking aimed at regaining themarket share we won in Japan in the 1990s.12 Riots, arson and looting, mainly targeting ethnicChinese, break out in Jakarta after four studentprotesters’ deaths. Estimated 1,200 killed.15 Jakarta banks and offices close, Indonesianfin-ancial markets inactive as rioting,looting, arson continue. Trading resumesafter three days.19 Suharto promises new presidential electionin which he will not run.21 Suharto resigns, ending 32 years in power.B.J. Habibie becomes president.24 Record 53% voter turnout for Hong Kong’sfirst election since becoming part of China.Pro-democracy candidates win 14 of 20directly elected seats.27/ South Korean workers stage two-day national28 strike to protest layoffs.28/ Pakistan tests six nuclear weapons in under-30 ground explosions in Baluchistan province.JUNE01 Pakistan stocks slump to record low in wakeof nuclear tests.01 Indonesian government begins investigationinto wealth of Suharto family.04 16,000 people commemorate ninth anniversaryof Tiananmen Square crackdown withcandle-light vigil in Hong Kong’s Victoria Park.09 31 children and infants die and more than10,000 infected by viral epidemic in Taiwan.10 Currencies and stock markets continue to fallthroughout Pacific Rim while G7 deputyfinance ministers meet in Paris to discussweak yen and Russia’s troubled economy.12 Yen falls to eight-year low of 144.75 to USdollar. Heavy stock selling in South Koreapushes market to 11-year low.18 US spends some US $2 billion to support yen,boosting it from 142 to 137 yen to the dollar.

GOODBYE SUHARTOWhile the Japanese economy was crumbling, Indonesia’s President Suharto was tumbling.The banking and currency crisis that hit Thailand in July 1997 quickly spread to Indonesia,which in October 1997 requested and was offered stand-by assistance from the IMF, oncondition that it undertake extensive reforms. As required by the IMF, Indonesia shutdown 16 commercial banks, setting off a panic, with runs against many other financialinstitutions, and raising a chorus of criticism of the IMF’s policies in Indonesia andelsewhere during the crisis. However, in January, Suharto unveiled a national budgetthat appeared to ignore the undertakings to the IMF. This prompted increased flight ofcapital, both domestic and foreign, bringing down the value of the rupiah by 30% in justtwo days. Suharto quickly reached a new agreement with the IMF, promising to cancela range of planned infrastructure projects, but again he and the government appeared tobackpedal on cancellations and closures which would hurt the interests of his familyand cronies.31Political uncertainty about the leadership of the country magnified the economic crisis:currency plummeted, food costs rose and import-based industries ground to a halt.Suharto, whose health was questionable, announced he would stand for a seventh fiveyearterm as president and chose as his vice-presidential partner his long-time protégéB.J. Habibie. Against this backdrop, civil unrest was swelling, with sporadic demonstrationsagainst rising food prices, often leading to looting of food stores run by ethnic ChineseIndonesians. Many of these outbreaks appeared to be less than spontaneous, perhapswith an intent to divert blame away from Suharto and the government for its inept18 World Bank lends US $300 million toMalaysia to help maintain social programs.20 Deputy finance ministers from G7 and Asiancountries meet in Tokyo to discuss Asian crisis.21 People’s Bank of China closes HainanDevelopment Bank, the first bank failuresince PRC founded in 1949.22 Japan announces plans for banking reform,including a “bridge bank” to provide loansfor cash-strapped banks.22 World Bank, other international donorsestablish Development Recovery Program tohelp Indonesians hardest hit by currencycrisis. Asian Development Bank pledges US$390 million to help keep children in school.23 North Korean midget submarine caught infishing nets off South Korean coast; all ninecrew members are dead.25 Indonesia signs revised IMF agreementresulting in release of IMF funds.25 President Clinton begins nine-day trip toChina, first presidential visit since 1989Tiananmen Square crackdown.29 Kuala Lumpur’s new airport in Sepang opens.30 Joseph Estrada inaugurated 13th presidentof Philippines.JULY02 Chinese President Jiang Zemin opens HongKong’s new international airport.04 Japan launches its first interplanetaryspacecraft to probe for evidence of waterbeneath surface of Mars.12 Japanese Prime Minister Ryutaro Hashimotoresigns after setbacks for Liberal DemocraticParty in upper-house elections.17 Tsunami strikes Northwest Province of PapuaNew Guinea killing about 3,000 people.22 Chinese President Jiang Zemin announces thatmilitary must give up its business ventures.

handling of the economic crisis. However, the protests spread from workers to studentswho were opposed to Suharto remaining in power.32On March 10 the rubber-stamp Peoples’ Consultative Assembly re-elected Suharto andthe next day named Habibie as his vice-president. Suharto appointed a new cabinetwhich represented more diverse views than in the past, but also included one of hislong-time cronies and his own daughter, whom many believed he was grooming as hiseventual successor. However, student groups were becoming more organized and morevocal in calling for Suharto to step down. The president adopted a conciliatory positiontoward the IMF, reaching yet another bailout agreement with the institution, and ministersannounced plans in line with the new conditions. However, this played out against abackdrop of mounting public demonstrations which eventually led to the deaths of severalstudents, shot by the army. The situation immediately got out of hand and on May 12widespread rioting, looting and arson broke out in Jakarta, much of it directed againstethnic Chinese. An estimated 1,200 people were killed, many trapped in burning shoppingcentres. Many Chinese women were raped. After some of his own close supporters turnedagainst him, Suharto resigned on May 21, to be replaced by Habibie.Despite Habibie’s lack of credibility, the political situation stabilized for a time, withrelaxation of political controls, removal of media censorship, and a promise to hold newparliamentary elections and a direct vote for president in the middle of this year. The rupiahalso regained some strength, but the financial system remained in ruins and unemploymentand poverty continued to rise. The period of stability did not last long, as students andopposition groups became more strident in demands for the military to withdraw25/ ASEAN Regional Forum meetings held in29 Manila.26 National elections in Cambodia with 39 partiesvying for 122 parliamentary seats.29/ Prime ministers of India and Pakistan meet at31 seven-member South Asian Association forRegional Cooperation conference in Colomboto discuss tensions in Kashmir.30 Keizo Obuchi elected head of ruling LiberalDemocratic Party, becomes Japan’s primeminister.AUGUST05 Typhoon Otto hits eastern China. Massiveflooding in southeast leaves 2,000 dead ormissing and 13.8 million homeless.07 Vietnamese dong falls 6.5%, its largest onedaydrop.10 Indonesia partially defaults on sovereign debtrepayments, meeting interest, but not payingany principal.11 Singapore stocks fall to lowest level in nearly10 years.14/ Hong Kong Monetary Authority intervenes in18 stock market and buys US $15.2 billion ofshares in bid to punish currency speculators.15 South Korea celebrates 50th anniversary ofthe Republic, grants 7,000 detainees amnesty.17 Indonesia celebrates 53 rd Independence Dayquietly, while demonstrators in other Asiancountries protest violence against ethnicChinese during May riots.18 Unemployment in Hong Kong reaches 15-year high at 4.8%.24 Former President Suharto’s son-in-law, Lt. Gen.Prabowo Subianto, discharged fromIndonesian military for involvement inpolitical abductions.28 UN World Food Program begins US $90million food aid program to Indonesia.

from its institutionalized role in politics, and for Suharto to be prosecuted for the wealthhe was alleged to have acquired in his 32 years as Indonesia’s leader. An investigationwas launched into Suharto’s fortune, but demonstrations became almost a daily occurrence,with mounting calls for Habibie to step down in favour of an interim president untilelections are held.MALAYSIA GOES ITS OWN WAYWhile Indonesia began the year under IMF surveillance and with mounting politicalturmoil, Malaysia, the third Southeast Asian victim of the currency contagion, wasattempting to repair its economy itself with a “virtual IMF” program of tight credit andbanking reform without actually approaching the IMF for support. Malaysia did not havethe huge short-term foreign borrowings of its neighbours, but it had a high level ofdomestic bank debt, especially in speculative property developments, and was running abig current-account deficit. Rightly or wrongly, foreign investors had lumped Malaysia inwith Thailand and Indonesia in their scramble to pull out investments, sending thestock market and currency plummeting. Deputy Prime Minister and Finance MinisterAnwar Ibrahim took on the role of champion for the orthodox, though painful, policiesmeant to rein in the excesses of Malaysia’s growth and strengthen its financial sector.In spite of these measures, companies with close links to the dominant United MalaysNational Organization (UMNO) still seemed to find support when the credit squeezeleft them in trouble. At the same time Anwar had to continually step in to soothe investors’fears and “clarify” Prime Minister Mahathir’s recurrent attacks on ill-informed foreignerswho had, in Mahathir’s view, victimized Malaysia because of its economic success.3331 Japan, US report North Korea fires a ballisticmissile over Japan. Pyongyang claims itlaunched a satellite.SEPTEMBER01 Malaysia announces measures to restrictconvertibility of its currency.01 Cambodia’s National Election Committeedeclares Hun Sen’s party the winner of Julyelections.02 Malaysia pegs exchange rate of the ringgit at3.8 to a US dollar.02 Malaysia’s Deputy Prime Minister and FinanceMinister, Anwar Ibrahim, accused of sexualmisconduct and sacked from government.Anwar claims he is falsely accused becausehe tried to expose political corruption.02 Vietnam releases 5,219 prisoners onanniversary of independence.04 Stock Exchange of Singapore announcesclosure of trading in Malaysian shares on itsCentral Limit Order Book (CLOB).05 North Korea elects Kim Jong Il as chairmanof National Defence Commission, the newposition for head of state. Kim Il Sung, hislate father, is named “eternal President.”08 Students riot in Jakarta, demanding lower foodprices and resignation of President Habibie.11/ Malaysia hosts Commonwealth Games, held21 in Asia for the first time.20 Anwar Ibrahim arrested in his home oncharges of sodomy and corruption followingpro-Anwar demonstrations.21 Malaysian riot police restrain crowds protestingAnwar’s arrest while the closing ceremony ofCommonwealth Games is held.23 Indian and Pakistani prime ministers meet atUnited Nations in New York to discussnuclear tests.24 Philippine Airlines grounds planes, halting allflights and stranding hundreds of passengers.

34By mid-year the austerity program was biting hard. GDP in the first quarter shrank 2.8%and in the second quarter was down by 6.8%. Sime Bank, some smaller banks and manyfinance companies had been forced into mergers with stronger rivals, 6 and businesses thathad borrowed heavily to expand were desperate for new loans and lower interest rates.A behind-the-scenes battle between the policies of Anwar and those of Mahathir and hisformer finance minister, Daim Zainuddin, who favoured a “made in Malaysia” reflationprogram, broke into the open when a key Anwar ally attacked “cronyism, collusion andcorruption” during an UMNO conference in June. Mahathir and Daim won the policyfight with Anwar. On September 1, Mahathir announced controls on the convertibilityof the Malaysian ringgit and a ban on short-term equity investments in the country. Thenext day Malaysia pegged the value of its currency. The IMF-style recovery strategy hadfailed, Dr. Mahathir explained, so the government was going to adopt a reflationary policy,with government support for ailing companies. The investment and exchange controlsinsulated the economy from the judgment of foreign investors on these new policies.Apparently the governor and deputy governor of the central bank did not agree with thisnew direction, so they resigned immediately.What had been an economic crisis then became a political crisis. On September 2, Mahathirsacked Anwar for “moral misconduct” on the grounds that, among other things, he hadengaged in illegal sexual relationships. Anwar immediately began speaking out publiclyagainst Mahathir, accusing the government of corruption, calling for reform and drawinglarge crowds to unprecedented protest rallies. With the showpiece Commonwealth Gamesunderway from September 11, the speeches and demonstrations were initially tolerated.But on the eve of the Games’ close, Anwar was arrested and charged with sodomyOCTOBER02 Philippine Airlines’ union accepts 10-year, nostrikecontract in exchange for 20% share inthe company.03 Japan announces US $30 billion aid packagefor four Asian economies hit by currency crisis.03 Liberal/National coalition led by John Howardretains power in Australian general election.05 Anwar Ibrahim charged in Malaysian HighCourt with four counts of corruption.05 China signs International Covenant on Civiland Political Rights.07 Japan’s Emperor Akihito and Prime MinisterKeizo Obuchi apologize in writing to SouthKorea for suffering inflicted during 1910-1945 Japanese colonial rule.09 Pakistan’s National Assembly amendsconstitution to make Islamic Sharia lawsupreme law of Pakistan.10 Malaysian government bails outinfrastructure conglomerate Renong groupwith US $1.2 billion.14 Senior negotiators from China and Taiwanmeet in Shanghai to discuss cross-straitsrelations for first time in nearly six years.16 Indonesia raises ceiling on foreignownership of banks from 49% to 100%.16 Negotiators from India and Pakistan begin aseries of meetings to discuss Kashmir.17 Thousands rally in Kuala Lumpur demandingresignation of Prime Minister MahathirMohamad, abolition of Internal Security Actand release of Anwar Ibrahim.19 Hyundai Motors Co. wins bid for bankruptKia Motors Corp. and Asia Motors Co.20 Representatives from 27 countries attendChina’s first international conference onhuman rights in Beijing.

and corruption, causing deep political divisions in the country and provoking streetdemonstrations. He was placed on trial November 2. The plight of Anwar, whosetreatment was widely viewed outside Malaysia as political persecution, drew internationalattention to the decline in political stability, which had been one of the country’s strengthsin a generally unstable region. Anwar’s struggle and the demonstrators calling for reformwere given spectacular prominence when US Vice-President Al Gore, in Kuala Lumpurfor the APEC Leaders’ Meeting in November, infuriated Mahathir by speaking up publiclyfor “the brave people of Malaysia” who were supporting the reform movement. (Gore’soutspoken position diverted attention from the more subdued protest by Prime MinisterChretién who, despite being immediate past chair of APEC, refused to meet one-on-onewith Dr. Mahathir.) Meanwhile, the easy-money policy adopted by Mahathir saw interestrates come down to pre-crisis levels, and government bail-outs for cash-strappedbusinesses. The most notable was the Renong group, which is closely aligned withUMNO. It received US $1.2 billion in government aid. At the same time, the reflationarypolicy has yet to show a macroeconomic impact as the economy continued to shrink. Inthe third quarter, GDP was 8.6% below the same months in 1997.35CHINESE CONFIDENCEIn one of the ironies of the Asian recession, the relatively closed economy of Chinaemerged as the linchpin of regional economic stability. Beijing stood firm in maintainingthe value of its currency — and reminded others of its apparent sacrifice — as those ofits regional rivals tumbled. China’s resolution was in stark contrast to the procrastinationand dithering by Japan. However, the crisis was not the major force at work in China,21/ Typhoon Babs hits eastern Luzon leaving23 189 people dead, and US $81 million indamage.21/ Representatives of North and South Korea,24 China and US meet in Geneva to discussKorean peace treaty.29 Philippine Airlines resumes international flights.NOVEMBER02 Trial of Anwar Ibrahim begins.07 US President Bill Clinton lifts most sanctionsimposed on India and Pakistan followingnuclear tests.09 15 former army officers sentenced to deathfor 1975 assassination of Sheikh MujiburRahman, founding father of Bangladesh.10/ Indonesia’s People’s Consultative Assembly13 approves political rules for post-Suharto eraas student protestors and governmentsupporters clash.11 Japanese Prime Minister Obuchi and RussianPresident Yeltsin meet in Kremlin and agreeto resolve Kurile Islands dispute by 2000.13 Cambodian political parties form coalitiongovernment with Hun Sen as prime ministerand Prince Norodom Ranariddh as presidentof National Assembly.13 Student demonstrators in Jakarta demandnew government and end to military’spolitical role. At least 16 students die whensoldiers opens fire.17/ Leaders of 21 APEC economies meet in Kuala18 Lumpur.19 First South Korean tourists since Korean Warvisit Mt. Kumgang in North Korea.22 Rioting between Christians and Muslims inJakarta leaves 13 dead.25/ President Jiang Zemin visits Japan; Prime30 Minister Obuchi apologizes for Japan’s waractions, promises to respect China’s claim toTaiwan.

36and in reality, there was little pressure on China to devalue. A slowing domestic economyaccompanied by deflation was the greater challenge. In addition, Beijing chose 1998 asthe time to begin major new economic reforms, like the transformation of urban housinginto a market-based system, and the restructuring of the control of state-owned enterprises(SOEs). The willingness to undertake socially risky reforms showed the confidence ofthe post-Deng Xiaoping leadership, confirmed in office by the National People’s Congressin March. The team of President Jiang Zemin and new Prime Minister Zhu Rongji —who replaced Li Peng as prime minister in March when Li completed his statutorymaximum term — received a helpful boost with the successful June visit by US PresidentBill Clinton. The major gain for China was Clinton’s undertaking that the US would notentertain a “two Chinas” policy and would oppose moves by Taiwan to seek membership inthe United Nations and other international bodies. Jiang also showed his firm grip onpower by ordering the military to give up all its business interests. It is yet to be seen ifthis can be achieved. But even by giving the military such a controversial order, Jiangshowed he is no longer wary of the military which was the area where he lacked supportwhen he first rose to power.As the Asian meltdown sent most regional economies into recession or stagnation, Chinawas still apparently recording strong growth. The government put 1998 GDP growth at7.8%, down only one percentage point from the level recorded in 1997. While the slowergrowth reflected the Asian recession’s impact on exports — virtually static comparedwith 21% growth in 1997 — that was not its main cause. More serious was stagnationof domestic demand in the face of a huge build-up of unsold inventories by SOEs, withthe result that the economy moved into a period of deflation. The consumer priceindex closed the year 0.8% below the 1997 level, while the retail price index was down2.6%. Industrial production growth also slowed, while domestic investment is far belowthe booming levels of a few years ago. By mid-year, the government had acted to haltsome of these worrying trends. In a bid to boost domestic demand, lending rates werecut to their lowest levels in 40 years and bank reserve requirements were eased. Governmentspending on infrastructure — a projected US $750 billion over three years — was boostedlate in the year in an effort to counteract the consumption slowdown, which thegovernment feared might be worsened by devastating floods in the economically vitalarea along the Yangtze.Despite the unfavourable environment for undertaking disruptive economic changes,Beijing moved ahead with its ambitious reform of SOEs and of urban housing. Fundamentalrestructuring of these holdovers from the socialist economy are necessary if China is tocontinue with the modernization of its economy. Many of the country’s 118,000 industrialSOEs are grossly inefficient and unprofitable. Under the reform, many will be closed ormerged, and restructured as corporations. Larger enterprises are also being turned intostate-owned companies and required to operate on a profit-and-loss basis. However, theneed to ensure the economy did not slow too much moderated the government’senthusiasm for socially risky changes, with the result that SOE reform is being implementedat a much slower pace than foreshadowed when it was announced at the September1997 Party Congress. Important parts of the housing reform were also delayed until1999 or later.

Mindful of the consequence in Southeast Asia of weak financial institutions, in mid-yearthe government closed Hainan Development Bank, making it the first bank failure sincethe PRC was founded in 1949. Several high-profile trust and investment companieswere also forced to close their doors. The government recapitalized the major nationalbanks with an infusion of some 270 billion yuan ($51 billion). It is believed that 20% to35% of loans by the big Chinese banks are non-performing, making at least some of themtechnically insolvent. However, the huge pool of personal savings flowing into the banks,in the absence of other saving alternatives, means they are far from illiquid. An importantgoal of the housing reform is to direct these savings into a more productive use: plannershope to make the housing and real estate industry a new centre of economic growth.As a step toward this — and as an essential part of the reform of SOEs which have beenresponsible for providing employee housing — the allocation of employer-subsidizedhousing is being phased out, with people encouraged to buy their own housing or requiredto pay market rentals. The nationwide target is to complete the transformation to a marketbasedhousing system by 2003.37While the switch from almost free housing to a rental/purchase system will likely angermany people, and SOE reform will boost the already high level of unemployment, thewillingness of Jiang and Zhu to pursue the potentially destabilizing reforms demonstratedtheir secure grip on power. This was further demonstrated in late June when PresidentClinton made a nine-day visit, during which Jiang debated openly with Clinton onnationwide TV on the merits of democracy, a right which is denied to the Chinese.Despite this display of openness and China’s signing of two important human rightsagreements, 7 the Chinese Communist Party again showed it will not tolerate any challengeto its monopoly on political power. In November and December a group of dissidentswho attempted to organize an opposition political party were arrested, tried and sentencedto lengthy jail terms. Capping a generally successful year for Jiang and Zhu, in earlyDecember voters in municipal elections in Taiwan ousted the pro-independence mayorof Taipei who is the leading contender to be the opposition party’s candidate in Taiwan’spresidential elections next year.

It is a legitimate function for the governmentto examine long-term market trends andto foster an environment that encouragescompanies with the necessary skills and resourcesto undertake investments that will playinto Asian markets.

3THE IMPACT ON CANADAwhere does it hurt?39The recession in East and Southeast Asia has demonstrated Canada’s relatively smalldependence on Asian trade — less than 10% of total exports before the crisis hit. 1 It alsounderscores the heavy and often painful reliance of some industries and regions on transpacificbusiness. Some of this is common knowledge: that British Columbia is far moreheavily involved in Asian trade, both in the value of shipments and as a proportion of totaltrade, than other provinces; that BC’s forestry and mining industries have some of theirmajor markets in Asia; and that Prairie grain farmers traditionally rely on Asia for about halftheir sales. The downturn also underlines the excessive dependence on commodities inour trade with Asia. As pointed out in this publication last year, reliance on volatilecommodities as the basis of our exports to Asia is not typical of Canada’s trading patternoverall, and has left us overexposed to the risk of a major downturn, as we are now seeing. 2The full impact on Canada of Asia’s slowdown is almost impossible to estimate accurately.Much of the effect is indirect, as the problems in the region continue to cause collateraldamage in other parts of the world. There are also offsetting gains. The slide in value ofthe Canadian dollar, set off by the rush into “safe” US dollars after the crisis began, hasmade our manufactured exports more competitive. It is possible, however, to isolate thepurely trade impact. In the first nine months of 1998, Canada’s exports to the 10 majoreconomies most affected by the recession (the Asian 10 3 ) were down 33%, compared withthe same period of 1997. 4 In 1997, exports to these countries were equivalent to about2.5% of Canada’s GDP, so the loss of about a third of these exports, in the absence ofany other factors, translated into a loss of about 0.8% of GDP. The low value of ourdollar likely helped boost exports to other markets, notably the US, where shipmentswere up almost 8.5% in the first nine months (although this was a slower rate of growththan in 1997 and in most years in the 1990s).The biggest impact has been on BC, with Ontario recording the second greatest loss interms of the decline in value of shipments to Asia. Before the crisis began, 9% of Canada’sexports went to the Asian 10. However, BC shipped fully a third of its exports to thesecountries, equal to around 8.5% of its gross provincial product (GPP). With its exports tothese countries down by 30% in January-September 1998, the loss in trade will knockabout 2.6% off its GPP for the year. The Asian 10 take less than 3% of Ontario’s exports,so the impact in GPP terms of its loss is around 0.5%. Even less affected were Quebec

CANADIAN EXPORTS TO THE ASIAN 10 (C $MILLIONS)1993 1994 1995 1996 1997Jan-Sept1997Jan-Sept1998% Change1997/1998BCAlbertaSaskatchewanManitobaOntarioQuebecAtlanticTerritoriesCanada6,6272,2571,3785492,0661,2626611814,8187,6582,9061,7315702,6891,409821317,7879,5193,8642,1307494,0451,9521,2173823,5148,9223,6252,0628573,4402,07495810122,0398,6943,6211,9538334,2182,1139242522,3816,8932,7721,5116273,2131,6706842517,3954,8061,9121,0504991,7931,099542011,701-30.3-31.0-30.5-20.4-44.2-34.2-20.8-100.0-32.740Source: Statistics Canada as quoted by: Strategis. Industry Canada, 18 December 1998.and the Maritime provinces, where the loss of markets was around 0.4% of GPP. Apartfrom BC, only Saskatchewan, at 2.2%, and Alberta, at 1.2%, experienced a substantialoverall economic impact.The big setback for BC has been the slump in Asian demand for commodities. This contrastswith the situation of Ontario, with its industry based on manufacturing, and closelyintegrated with the US market. There is very little import content in BC’s commodityexports, so its major industries have not gained much assistance from the lower prices ofimports from Asia. Even worse, in world markets most commodities are priced in US dollars.As a result, the fall in the value of the Canadian dollar has been of little help to thecompetitiveness of BC commodities. On the other hand, Ontario’s huge trade with the UShas benefited from the increased competitiveness of its manufactured products. Thiswas reflected in an increase of 10% in the value of Ontario’s shipments to the US in thefirst nine months of 1998.BC’s biggest loss has been in shipments of lumber. While these account for only 5-6% ofCanada’s exports, they represent 30% of BC’s exports, making lumber its top exportproduct. In 1996, while the Asian economies were still booming, about 30% of BC’slumber went to Asia. In January-September 1998, shipments to Asia were down by 50%,accounting for all of the drop in total Canadian lumber shipments in that period. Japanhas been BC’s biggest Asian market by far and Japanese statistics show the source of BC’swoes — a drop of 45% in that country’s imports of lumber from all markets in the firstnine months of 1998. The impact on the BC industry is devastating. There has been acascade of mill closures and forestry shutdowns, with the result that by the end of the yearalmost half the province’s forest workers were laid off.The mining industry fared a little better. BC ships almost 80% of Canada’s coal; half ofit to Japan, and another 23% to other Asian markets. Nationwide coal exports weredown 9% in the first three quarters of 1998, all of that accounted for by reducedsales by BC. The picture in the copper industry was similar. With virtually all theprovince’s markets in Asia, shipments were off 40% in the first nine months of 1998.Nationwide, gold, aluminum, molybdenum and lead shipped to Asia recorded declinesof between 19% and 95%. While BC is not the leading Canadian producer of these

DECLINE IN CANADA’S COMMODITY EXPORTS TO THE ASIAN 10 (C $MILLIONS)Jan-Sept1997Jan-Sept1998 % ChangeLumberPlywoodWheatBarleyCoalGold (non-monetary)Copper2,0281361,1631701,4354844471,01263533501,305123269-50.1-53.7-54.2-70.6-9.1-74.6-39.8Source: Statistics Canada as quoted by: Strategis. Industry Canada, 6 January 1999.41metals, its share of Asian exports was generally the largest, so its shipments recordedproportionately greater declines.Alberta’s problems with the Asian slump have been different and less direct than BC’s.The province’s oil and gas exports — the bulk of Canada’s sales of these commoditiesand about a quarter of all Alberta exports in 1997 — go almost entirely to the US. Albertabegan to face falling prices resulting from an oversupplied US market, starting about ayear before the collapse of the Thai baht signalled the start of the Asian crisis. However,the crisis caused demand in Asia to drop sharply, further depressing the price of crudeoil in the world market. As a result, shipments of oil from Alberta in January-September1998 were down about 20% in terms of Canadian dollars (and about 25% measured in USdollars). Alberta’s direct trade with Asia also took a 31% hit in the same period,reflecting much-reduced grain shipments.The 31% fall in Saskatchewan’s Asian sales in the January-September period of 1998reflected the decline in Canada’s wheat exports — down from the third quarter of 1997,which itself was the worst year for grain sales in three years. Shipments of grain fromSaskatchewan dropped 57% in value in the nine-month period, in line with the declinein each of the other two main grain-producing provinces of Alberta and Manitoba. Themain setbacks were in sales to Indonesia, South Korea (where shipments fell more than89% by value) and Japan (down 66%).Exports are only part of the trade picture. The sharp fall in Asian currency values coupledwith countries’ growing needs to earn foreign income saw imports from Asia jump,especially when measured by volume rather than value. Overall the increase by value inthe first nine months was 15% from the Asian 10. Generally, more imports at lower pricesare a benefit to consumers and industries using those products. However, hidden in thefigures are trends that could foreshadow problems ahead. For instance, imports of ironand steel from South Korea leaped 1,000% in quantity in the first three quarters of1998 (compared with the same period of 1997) to grab about 5% of the steel importmarket. Steel is a basic industrial input, and lower prices can mean reduced prices forfinished products, whether they are automobiles or office towers. However, the floodof steel which came out of South Korea in the first half of 1998 disrupted markets in

○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○EXPORTS TO ASIA PER CAPITA 1997 (C $)0 500 1,000 1,500 2,000 2,50042CanadaBCSaskatchewanAlbertaManitobaNewfoundlandNew BrunswickNova ScotiaOntarioQuebecYukon/NWTPEISource: Statistics CanadaAsia and provoked complaints that the steelmakers were unfairly undercutting manufacturersin the importing countries. While the volume of South Korean steel enteringCanada is small compared with our overall market, it is a reminder of the pressure onAsian companies to sell at low prices as they seek revenue to service their debts. There isa risk that low-priced imports will cause excessive price competition for some Canadianfirms and provoke protectionist calls for anti-dumping duties and other administrativebarriers to trade. There is a rising chorus of complaint in the US against Asian imports,particularly cheap steel.It is not only merchandise trade that has felt the impact of the Asian recession. Areaslike tourism, international education and immigration have also lost ground. In 1997,tourist arrivals from Asia were down 9.4%, reversing a steadily rising trend throughout the1990s. The process accelerated last year, with a further drop of 21% during the first ninemonths in tourists arriving from the Asian 10. The most serious fall was the 16% decline,in the first nine months of 1998, in Japanese visitors who normally account for about halfof all the tourists from Asia. Proportionately, the biggest loss was from South Korea,where arrivals collapsed by 60% in the first nine months of 1998, more than wiping outthe strong growth of the previous four years.Underlining the difficulty of isolating the specific impact of the Asian crisis, tourismfrom the US to Canada was up strongly. Most industry observers attributed this to thedrop in value of the Canadian dollar which, in turn, was a result of instability in exchangerates set off by the Asian crisis. As the US is Canada’s largest source of tourists, the risein visitors from the US meant that overall tourist arrivals in the first seven months of 1998were up 5.7%, a gain which appeared to carry through the whole year. Regionally, thebiggest impact of the downturn in Asian arrivals was again BC. The decrease in Asiantourism, in the year to July 1998, was reported to have caused the closure or bankruptcyof more than 60 travel agencies specializing in Asian clients. 5International education has also suffered. Studies by the Canadian Education CentreNetwork and others show that providing education to foreign students generatesrevenue of $1.4-$2 billion for Canada each year, with more than half of this total paid bystudents from East Asia. 6 In the first nine months of last year, the number of student

○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○IMPORTS FROM ASIA PER CAPITA 1997 (C $)0 500 1,000 1,500 2,000 2,500CanadaBCOntarioQuebecManitobaNova ScotiaAlbertaNew BrunswickSaskatchewanNewfoundlandYukon/NWTPEISource: Statistics Canada43visas issued in nine of the 10 most affected Asian economies 7 was down 26%. However,this records only students who were planning to come to Canada for study periods ofmore than three months. About half the foreign students who enroll in Canadianinstitutions are there for less than three months, with most of them attending Englishlanguagecourses. These students may come to Canada as tourists and normally do notrequire a student visa. The largest groups of language students are from Japan and SouthKorea — in fact the 60% drop in South Korean tourist arrivals reflects an almost completecollapse in enrolments of young Koreans attending Canadian ESL schools. The net resultis that the 26% decline in student visas issued probably understates the full extent ofthe decline in total student numbers, which is likely to be more than 40%. Taking intoaccount the length of stay of the students, the loss of revenue to the Canadian economyin 1998, due to a drop-off in numbers of this magnitude, was around $210 million.These figures do not include any allowance for international travel to or from Canada,which is yet another area showing a downturn. In the first nine months of last year,passenger traffic to and from Asia through Vancouver International Airport was down1.5%. However, in the two previous full years, Asian traffic was up 15.1% and 10.8%, sothe recession has likely knocked 12%-15% off the expected level of Asian-relatedtraffic. Seaborne trade has been less affected. In the first nine months of 1998, outboundfreight through the Port of Vancouver to the Asian 10 was down 3% in terms of totaltonnage. Imports through the port from those same countries surged 39%, buoyed bymassive increases in freight from South Korea (up 189%), China (up 44%) andIndonesia (up 97%).A final area of impact is in immigration numbers. In the first nine months of 1998,15,000 intended immigrants from Asia decided not to use visas that had already beenissued. In addition, the number of new immigrant visas issued in Asia during the firsthalf of 1998 was 51,529, down 27% from the same period in 1997. According to ImmigrationMinister Lucienne Robillard, the declines were a result of financial uncertainty in Asiaand liquidity problems faced by would-be immigrants. As a result of the reduced Asiandemand, the target for new immigrants in 1998 was cut by 25,000 to 200,000. 8 The biggestimpact of the reduced Asian inflow has been on BC, which according to census data hasbecome the home for about one third of recent Asian immigrants. Fewer new arrivals has

contributed to reduced population growth in the past year, a slowdown in consumerspending and a decline in prices for property in some areas of Vancouver favoured by themore affluent Asian immigrants.KICKING THE COMMODITIES HABIT44Are there lessons for Canada to be drawn from the impact of the Asian recession? Themessage is that heavy reliance on commodity exports leaves a country, region or industryhighly vulnerable to economic fluctuations. While the fall in demand that occurs in anydownturn will affect most exports, generic commodity products are far more likely to besubstituted by lower-cost suppliers. This is one of the problems BC lumber has faced inits previously strong Japanese market. Canadian prices have risen relative to those ofsome non-traditional suppliers to Japan, like Russia and Scandinavia. Higher Canadiancosts often outweigh the supply risks from those countries. Indonesia has become amuch more attractive source of wood chips than Canada following the collapse of itscurrency. Coal and semi-refined metals face similar risks of substitution, especially fromproducers in Asia or Latin America whose currencies have dropped relative to that ofCanada, bringing down their production costs in US-dollar terms.BC and the other Western provinces have been blessed with a resource endowment whichhas largely determined the shape of their industries. However, greater encouragementby government is needed to induce producers to add value to these resources beforethey are exported. Shipping lightly processed commodities is equivalent to shipping jobsout of the country. The idea of “government encouragement” smacks of the planningand intervention so out of favour with the free-market ethos holding sway in NorthAmerica. Yet governments in Canada should recognize that our commodities are beingimported and processed in economies that are wedded to planning and intervention.Their future needs are often set out well in advance. While government itself shouldnot undertake nor subsidize resource value-added projects, it is a legitimate function forit to examine long-term market trends and to foster an environment that encouragescompanies with the necessary skills and resources to undertake investments that will playinto those markets.The success of the forest products industry in diversifying its market in Japan — at leastuntil the onset of recession brought a dramatic slowdown in home-building — shows whatcan be achieved with largely private-sector leadership. Over recent years, the industryhas moved well beyond simply supplying cut lumber, with the successful introduction ofCanadian 2x4 wood-frame building technology, then into the supply of wood-framehouses in kit form. These are supplied with finished interior fittings such as doors, windowsand kitchen cabinets, usually supplied from Canada. Between 1993 and 1996, shipmentsof pre-fabricated houses climbed more than sevenfold to $182 million. Sweeping reformof the Chinese housing market, in which families are able to buy or rent homes of theirown choice, offers a potential market for Canadian housing exports (especially in coldernorthern China) once issues of mortgage lending are solved by China’s banks. China alsooffers a base for export operations by housing component manufacturers.

While it is much harder to upgrade coal than lumber or base metals, a better alternativeto exporting it in mineral form is to convert it into energy, using the highly efficientpollution controls that are now available to coal-burning power stations. The energy canthen be used to turn out manufactured products. Canada is already exploiting itscomparative advantage in hydro power in Quebec and BC to produce aluminum — evenusing imported raw materials. For grain-growers, rising living standards in Asia are creatingdemand for processed foods. The success of Canadian frozen french fries and frozenorange juice in Japan and Taiwan points the way for increased shipments of wheat-basedconvenience food products to Asia. To date sales of these products represent a tiny fractionof the overall wheat and flour market. Another longer-term option for grain producers isthe export of grain-fed beef and pork.Service industries face a less difficult challenge in overcoming the substitution of theirproducts by lower-cost alternatives. They can more easily become cheaper suppliersthemselves by moving their activities offshore. International education offers an exampleof this strategy. While visas issued in nine of our major sources of foreign students weredown 26% in the first nine months of 1998, inquiries with Canadian Education Centresgenerally remained strong. In Bangkok, Kuala Lumpur and Singapore visas issued forstudy in Canada were down 52%, 52% and 18% respectively. At the same time, inquiriesby students interested in gaining a Canadian education were up 137%, 16% and 45%respectively. This suggests there is considerable scope for Canadian institutions toexpand their delivery of programs in Asian cities, reducing much of the costs to studentsas a result of the depreciation of their home currencies, at the same time bringing jobsand incomes to Canadians.45While Western Canada lags in upgrading its resource exports, it has been quite successfulin exporting to Asia its services expertise in these industries. No figures are readilyavailable that break down the various services sold in Asia, however, Canadian companieshave designed pulp mills in Indonesia and China, developed railroads in Pakistan, andare at work all over Asia on mineral and oil and gas projects. Some might argue thatdevelopment of resource-processing facilities in Asian competitors undermines the longtermmarkets for Canadian exports. However, an even stronger argument is that it pointsto the need for Canada to further increase the on-shore processing of resources to takeadvantage of the greater technological or “knowledge” advantage we have over theindustrializing countries of Asia. The economies of Asia will soon recover. Demand forour commodity exports will recover. However, just as certain is the impact of the nextdownturn in Asia unless Canada increases considerably the value added to these products.

In much of Asia, and especially in Japanand Southeast Asia, ambiguity is a fundamentalpart of human relationships and a keyingredient in the compromises that bringpolitical stability.

4DOING BUSINESS IN ASIAnew rules, same game47The financial crisis will inevitably bring about changes in the way business is done inAsia. Recovery will involve extensive regulatory reforms, bank recapitalization, corporaterestructuring and political realignments. And there is the question of greater “transparency.”The changes, in both business and government, may not be as sweeping as many Westernanalysts suppose, and they may not all be in the directions that Wall Street bankers andWashington policymakers would like. But at the very least, the fallout from the crisis willestablish new ground rules for the way Asian companies raise finance, trade and invest,notably in dealings with foreign partners. Those who understand the new rules and acton them will gain the largest benefit. This is true not only of commercial transactions,but should also be a factor in developing Canadian foreign policy.The biggest changes will be in banking and finance, the epicentre of the Asian collapse.No longer will reputation and connections be the collateral for major corporate borrowings.The guarantee that these reforms will come about is the restructuring mandated by theInternational Monetary Fund in South Korea, Thailand and Indonesia plus the muchgreater future involvement of foreign institutions in Asian funding and domestic banking.The rescue of the ailing banking systems in East and Southeast Asia needs hugeinjections of foreign capital, perhaps as much as $350 billion. 1 Corporate borrowers needeven more. Capital on this scale will only be available if it carries with it a substantialmanagement voice in the institutions and companies into which it flows. Asiangovernments have recognized this by liberalizing their restrictions on foreign ownershipand control. This opens up considerable opportunities for investment in Asia that somemajor Canadian groups have already taken advantage of, notably in South Korea whichhas gone furthest in throwing open the door to majority foreign holdings in previouslyrestricted industries. 2Asian countries and companies must turn mostly to North America for their new capital.It is the primary source available. Japan, and to some extent South Korea, provided agreat deal of the private money that fuelled the investment boom in Southeast Asiaduring the 1990s, but they have their own urgent financial needs and the Japanese andKorean banks will not be major foreign lenders for years to come. Large Europeaninstitutions are carrying far more non-performing loans to Asia than North American banksand will generally not be willing to offer funds on the same scale as North America. 3

However, accepting new capital from the now much more cautious North Americanbanks means Asian borrowers will be required to play by North American rules. Of course,these rules may only prevail until boom conditions return and foreign bankers againbend their own rules in their eagerness to lend — one of the underlying causes of theAsian crash in the first place.48During the boom years, foreign banks were fighting each other for a piece of the actionin Asia, so borrowers were able to dictate terms, and push the banks into the practiceof dealing on “trust” — accepting as security for loans the guarantees, and reputations,of borrowers’ apparently flush business associates or affiliated companies. Balance sheetswere either too narrow or too opaque to be of much use. The banks, believing along withtheir clients that Asian growth was inevitable and seemingly unstoppable, were willingto accept this manifestation of “Asian values.” That practice is already a thing of the past.Foreign lending today, such as it is, comes only after extensive due-diligence inquiriesand when backed by real collateral. This, in turn, is underwritten by new bankruptcylaws which supposedly allow a foreign lender to take over assets of a borrower in default.Hopefully, there will no longer be any assumption by foreign lenders that future loans tomajor private-sector borrowers come with some implicit sovereign guarantee. Thereshould no longer be the belief in a shadowy Suharto-type connection or Korea Inc. behindloans to politically favoured borrowers — except in Malaysia — even though foreignlenders’ assumptions were proven right when the South Korean government effectivelynationalized private-sector debts incurred before that country’s financial crisis hit. Newdebt does not carry that guarantee. The bankruptcy of Kia Motors and the US $9.3 billiondebt write-off its domestic creditors were forced to accept is the strongest sign yet thatCORRUPTION UNDER ATTACK“Lack of transparency” in many circumstances has a much more specific meaning than the broad sensein which it is used in visions of the “New Asia.” It means corruption — the abuse of public or privateoffice for personal gain. Corruption has become recognized as a major factor influencing, or distorting,investment decisions and is being attacked by a growing list of international bodies. In the past threeyears, the United Nations, the IMF, the Asian Development Bank (ADB), the Pacific Basin EconomicCouncil (PBEC), the World Trade Organization (WTO) and the Organization for Economic Co-operationand Development (OECD), among others, have developed explicit policies to combat corruption andillicit payments. Canada has participated in all these initiatives.Studies by the ADB in a number of unnamed Asian countries show the massive costs of corruption.The bank estimated it adds 20%-100% to government costs for goods and services in some countriesand can siphon off up to half their tax revenue. One East Asian country lost US $48 billion to corruptionin the past 20 years – US $7.4 billion more than its foreign debt. Another country lost US $50 billionover 10 years because government officials sold off state property cheaply to private investors in returnfor kickbacks. In yet another, in South Asia, the government estimated that it lost US $50 million a daybecause of mismanagement and corruption. In a succinct summary of the overall impact, one studyconcluded that “corruption leads to the favouring of inefficient producers, the unfair and inequitabledistribution of scarce public resources, and the leakage of revenue from government coffers to privatehands. Less directly, but no less perniciously, corruption leads to loss of confidence in government.” 1For the past three years, the NGO Transparency International has published a list of economiesranked according to the publicly perceived level of corruption. The latest list covers 85 countries. SixAsian states were ranked in the bottom third, the most corrupt countries in the world. Indonesia had

loans to a major South Korean group are not gold-plated sovereign debt. Malaysia alonehas opted for the ways of the past. Part of its domestic reflation strategy has been to usegovernment money to cover the debts of politically connected business groups. The nextfew years will provide a fascinating test of the relative attraction to foreign lenders ofMalaysia, adhering to the old rules, and IMF-backed South Korea, Thailand and Indonesia,following the new.One consequence of the tighter foreign lending is that growth rates in most Asiancountries are likely to be much lower than in the past as they depend more on domesticcapital to fund new investment. The controversial contention by US economist PaulKrugman that Asia’s spectacular growth rates were based largely on a high inflow ofinvestment and abundant cheap labour 4 will be put to the test when funds availablefor investment are restricted over the next few years. Because of the financial situationSouth Korea, Thailand, Indonesia and Malaysia face, the pool of domestic fundsavailable for investment is likely to be limited for several years. Billions of US dollarsof domestic money flowed out of Southeast Asia and South Korea in the two yearsbefore the crisis began, 5 and this money, which was looking for security rather thanspeculative gains, is unlikely to return until economies have resumed solid growth. It wasseven or eight years after the fall of Ferdinand Marcos in the Philippines before fundsheld offshore began to return in large sums. The economic turmoil that accompaniedthe departure of Marcos is more like the situation facing Indonesia than Thailand orMalaysia. The return of offshore domestic capital to Thailand, and perhaps Malaysia,should be quicker than in the Philippines, once the economies resume their growth.One complicating factor, though, are the restrictions Kuala Lumpur has imposed on the49the dubious honour of ranking 80 th out of 85. Not much better were Vietnam and Pakistan. Canadaranked as the sixth least corrupt. 2In a bid to bring greater transparency to international transactions, government and private-sectororganizations have drawn up codes to define and ban corrupt practices in government transactions.PBEC, which represents more than 1,200 major businesses in 20 countries around the Pacific, lastMay adopted a charter calling on its members to avoid bribery, either directly or using agents; useof off-the-books accounts; or illicit political contributions. PBEC has asked its members to draw upcompany codes of conduct which embody these principles, though adoption of the standards isvoluntary. PBEC believes the economic hardship now being faced across Asia has reduced the tolerancefor graft and will make it easier for companies to adopt an anti-bribery stance.The OECD, plus five other Latin American and European countries, in December 1997 signed aConvention on Combating Bribery of Foreign Public Officials in International Business Transactions. 3Countries ratifying the convention, which comes into force on March 1, will introduce legislation tomake bribery of foreign public officials a crime. Before the OECD agreement, only the US had a lawbanning bribery overseas. German companies, on the other hand, were able to claim bribes paidoverseas as tax deductible business expenses. The OECD charter will directly commit only four Asia-Pacific member countries to outlaw bribery — Canada, the US, Japan (which have already ratified thepact) and South Korea. However, when applied by other countries trading and investing in Asia, it will bea powerful sanction against outright bribery, although “facilitation” payments, political contributionsand other soft forms of influence buying are not covered.

movement of capital out of Malaysia. As long as those remain in place, there will be anextra disincentive for offshore funds to return to Malaysia, for fear of being trapped there.Hopefully the capital controls will be short-lived.‘TRANSPARENCY’ VERSUS CULTURE50One of the clichés about the Asian economic crisis is that both in business and government,Asia must become more “transparent” — more like North America in style. By someaccounts, this is held to be almost a panacea for the problems that caused the Asiancrisis in the first place. To hear Americans explain it, as US Vice-President Al Goredid in Kuala Lumpur during last year’s APEC Leaders’ Meeting, only US-style freemarketcapitalism can rescue Asia, and that will only come about in an environmentof democracy, as it is defined in Washington. However, these Western ideals aregenerally an uncomfortable match with the cultures or stages of political developmentof Asian countries. This is not to doubt the desirability or inevitability of more openbusiness practices and greater political pluralism, but rather to question how quicklyand how extensively increased transparency will become the norm in Asia. It is anissue in which Canadian policymakers could well take a more culturally sensitive approachthan Washington’s aggressive promotion of US-style ideals.Transparency in the West is taken to mean openness, which is assumed automatically toinclude honesty and clarity. While honesty is as much a virtue in Asia as it is in Westernsocieties, clarity is not. In fact, in much of Asia, and especially in Japan and SoutheastAsia, ambiguity is a fundamental part of human relationships and a key ingredient in theIn September 1997, a group of 13 Canadian companies with significant overseas operations agreedto an International Code of Ethics for Canadian Business. 4 The code covers a wide range of areas fromenvironmental protection to human rights, but includes a section which is consistent with the PBECcharter, although not touching on political contributions. It was a first step toward giving Canadianexecutives a set of guidelines to help them deal confidently and consistently with the difficult issue ofcorruption in foreign countries. The OECD convention, backed by Canadian law, will provide an evenstronger foundation. However, until all countries agree to the same definitions of corruption, andimpose the same sanctions, countries which have a set of rules will be at a competitive disadvantagewith traders and investors who do not play by the same rules. It is a policy goal of the Government ofCanada to promote good governance around the world. It would help the cause of both goodgovernance and Canadian competitiveness if the government were to take up the cause of broadeningthe OECD convention into an international agreement, perhaps by seeking to have the issue includedin the expected new Millenium Round of the World Trade Organization.

compromises that bring political stability. In societies in which assimilation and consensus,rather than confrontation and capitulation, mark the path to social harmony, greatertransparency is more than just another aspect of economic modernization.“Lack of transparency” is cited as one explanation for the excessive lending by foreignbanks and ill-informed investing by foreign fund managers in Southeast Asia before lastyear’s currency collapse. Greater transparency, it is argued — though rarely defined —is necessary before foreign capital will return on a large scale. In banking deals involvingforeign partners, greater transparency, sooner rather than later, is inevitable. Westernpartners who will supply the capital needed for Asia’s restructuring are in a position ofstrength to insist on more openness. But the notion that this will spread across thewhole gamut of business in Asia is mistaken. The way business is done in any countryis as much a reflection of culture as it is of laws. The business culture of any country inAsia will not change overnight or even over a period of a few years, especially as a result offoreign-mandated regulatory reforms, like those required in International MonetaryFund bailout packages. It is more likely that the foreign model will be adapted to suitthe entrenched local culture. The sense of public accountability underlying North Americanbusiness practice is a reflection of North American culture, built on the concept ofindividual responsibility. This cannot be simply transplanted into most of Asia wheregroup responsibility is the foundation of society. The key issue is accountability. In NorthAmerican business, the corporation is primarily responsible to its shareholders. Corporatelaw entrenches this. In most of Asia, despite an overlay of Western corporate law injurisdictions like Hong Kong, Singapore or Malaysia, accountability is to stakeholders— generally the controlling family or group of shareholders, and, frequently, governments.This accountability is not likely to be quickly transferred to individual shareholders. InHong Kong, where commercial law is fully in line with Western practice, several decadesof pressure by the British colonial government was unable to convince the business elitethat insider trading, in Western terms one of the most obvious abuses of “transparency,”was an improper use of corporate information. In Asia, the concept of stakeholder rightsis more powerful than that of shareholder rights.51Accountability is closely linked with information flow. In Japan, accountability now, andin the future, will be to government and bankers; in China, it will be to government; inSouth Korea, and perhaps Singapore, to the controlling family and government; in HongKong, Thailand, Indonesia, the Philippines, Taiwan or Malaysia to the controlling familyand their financial partners. Any enhanced information flows will be for the benefitprimarily to those groups, rather than to outside directors, shareholders or investors.In Japan, for example, ministries that control areas of the economy have daily access toinside information from corporations they oversee. Companies must submit audited financialstatements to the ministry of finance no later than three months after the close of theirfinancial year. Around this time, investors are given a brief summary of results. Only twomonths after this do shareholders have access to the full accounts.The Chinese business networks that criss-cross Asia and the Pacific are long-establishedand have been a very effective conduit for information. But this information is notgenerally accessible to non-members, as it would be in North American companies through

52such devices as balance sheets or profit-and-loss statements. It is virtually impossible todescribe in balance sheet form such things as contingent liabilities or collectibles in aChinese family business, as much of this is in intangible obligations by way of bloodrelationship or in return for past favours. There is no reason to assume this system ofinformation flow and accountability is much less efficient for those inside the networkthan the more open, more democratic, system in North America. The performance ofChinese-owned business in Asia in recent years suggests it has been a very successful modelin a growth environment, giving a competitive advantage to those who participated inthe networks, and placing potential competitors at a disadvantage. However, this lack ofopenness also contributed to the growing misallocation of capital which worsened theAsian collapse, so there must be some doubt about the future of the Chinese networks. 6There must also be a question as to how much the Asian crisis has damaged these businessempires, typically built around property development or commodity trading, areas whichhave suffered severely.The role of government in most Asian economies is another reason why business practiceswill not change in the ways Wall Street might like. Access to capital in many Asiancountries has been controlled formally or informally by governments — China, SouthKorea, Indonesia and Malaysia fall readily into this category — and this relationship islikely to continue. In this case, the most important accountability relationship is to thegovernment or government officials. A call for changes in corporate governance in Japanor South Korea is, in effect, a call to have bureaucrats in economic ministries give uptheir power. Bureaucrats in these countries have seen their role as guardians of the policyof economic growth on which their countries’ prosperity and stability has seemingly beenbased. If they allowed the market to take over the job of allocating capital, it wouldthreaten the whole economic structure of the countries. 7 This is one reason why in SouthKorea capital continued to flow to the giant business groups, the chaebol, long after theadministration of Kim Dae Jung agreed with the IMF that the biggest groups had to berationalized and forced to live on earnings rather than on cheap loans. A succession ofKorean governments have had this policy goal, only to see the banks, dominated by financeministry officials, continue to direct most of their lending into what they considered tobe the safe hands of organizations that could never fail. In Japan, the power of thefinance ministry is even greater. The combination of ministry control over banks’ purchasesof government bonds plus the “main bank” system regulating companies’ access to bankcredit leaves no doubt that bureaucrats are central to the economic system.In countries where government has changed because of the economic crisis, there hasbeen no pressure by local businesses for government to end its “big brother” relationshipwith the private sector. Rather, there has been a jockeying for position by companieseager to build ties with the new administrations. In virtually all Asian countries, there isa public acceptance of government as a key player in the economy, unlike the currentprevalent attitude in North America that the best thing government can do for theeconomy is to leave it alone. The impressive economic growth racked up in the 1980s and1990s in most Asian countries involved government leadership and has been one factorlegitimizing the power of less-than-democratic regimes. In fact, one favoured explanationof the Asian collapse is that governments stepped back too quickly from their regulation

of economies, especially financial sectors. The collapse that came was caused by privatesectorexcess when allowed relatively unfettered use of capital, not by governmentprofligacy. The clean-up of the economic mess left by the private sector has increased,rather than decreased, the economic role of governments. Their voice in the allocationof capital will remain powerful for years to come. In Malaysia, the controls governmenthas imposed on capital and investment flows ensure that its say in access to funds willnot decrease any time soon, making business even more beholden to government than toshareholders. In Indonesia, only the government is in a position to deal with the neartotalimplosion of the financial system, ensuring its continuing influence over the allocationof capital. In Thailand, too, the government has had to step in to repair the damagedbanking system, taking control of several of the most seriously weakened banks.Even in South Korea, where Kim Dae Jung has espoused a policy of ending thegovernment’s resource allocation role in the economy, it is still the government, not themarket, which is making the decisions about corporate restructuring. The government,through its closely controlled banks, has been deciding which businesses can survive bygranting them credit. The government’s actions speak louder than its words — or perhapsthe bureaucracy’s words speak louder than those of the government. South Korea’sadministration insists that the chaebol must rationalize their activities, shed their myriadunprofitable subsidiaries and concentrate on just one or two core business areas. But sincethe economic crisis began in November 1997, the five leading chaebol have been granted mostof the new credit available in the economy. Because of the political repercussions of thecollapse of a leading chaebol, the government — or the bureaucracy — is unwilling to allowthe market to settle the fate of the groups.53Over time, as economies mature, the role of government in the economy will diminish,though the example of Japan suggests it will not happen quickly. As domestic bondmarkets in Asia develop to supplement banks, family relationships and governmentpatronage as the main sources of capital, there will have to be a greater corporate opennessto independent scrutiny. However, this process will take years, and will be driven bydomestic, rather than foreign, needs.OPEN THE DOOR SLOWLYIn government, acceptance of greater transparency any time soon is even more problematic.It would require most of those now in power to admit to and accept responsibility forerrors in their past performance. In states that do not have deeply entrenched democratictraditions, and where the loss of face which accompanies the admission of error can markthe end of a career, such admissions are rare. Anwar Ibrahim in Malaysia had alreadylost his position of power so he could make a virtue of pointing to corruption in anadministration of which he was a leader for more than a decade. His mentor-turnedtormentorand still prime minister, Dr. Mahathir Mohamad, has gone in entirely theopposite direction and found fault in various people outside his own government toexplain Malaysia’s fall from prosperity. It is hard, too, for B.J. Habibie, now president ofIndonesia, to cooperate while the dubious inner workings of the Suharto era are exposed.Habibie was a key member of that regime, a point democratic reformers and students arequick to make. In Thailand, Prime Minister Chuan Leekpai, though seemingly more

competent and open than many of his colleagues, was a long-time player in the corruptpolitical system which helped bring the Thai economy tumbling down. In Japan, theLiberal Democratic Party, still clinging to power, has intimate ties with the financialinstitutions it is trying to support and reform at the same time. Even the long-time dissidentKim Dae Jung, now president of South Korea and much abused by the secret manipulationsof past administrations, was loath to bring close scrutiny to the activities of his predecessorand long-time rival, Kim Young Sam. This is because the president has acknowledgedobliquely that his own party, too, participated in the money politics that has so distortedthe Korean economy. Yet greater openness in government must eventually come.54Lack of transparency helped create the atmosphere of suspicion and distrust which hasled to outbreaks of anti-Chinese rioting in Indonesia, street protests in Malaysia insupport of Anwar Ibrahim and the collapse of public confidence in Japan in the wake ofgovernment scandals. “Greater transparency in government” are code words for “greaterdemocracy” and democracy — the choice of governments in free and fair elections, wideparticipation in policymaking and freedom of expression — is gaining ground steadily inAsia. Indonesia is the latest state to experience the fall of the “strong leadership” modeltypical of Asian states in their earlier stages of economic modernization. Taiwan andSouth Korea made the transition under less painful circumstances than Indonesia.Thailand and the Philippines also made the change, although in less decisive ways thanTaiwan or South Korea. As Lee Kuan Yew, the Senior Minister of Singapore, and a believerin strong leadership which he practised himself for 31 years as prime minister, hassaid: “. . . once 20% or 30% of your urban population . . . has a college education, thenext 40% or 50% are in polytechnic or technical schools and the rest have a generaleducation of about US tenth-grade level, you can no longer just give orders from the topdown if you want to succeed in your economic development.” 8 Economic developmenthas motivated Asian governments and they have generally acknowledged the politicalchanges that modernization brings. Even China is seeing political reform as inevitable.However, greater transparency in government is more likely to come once economic growthhas resumed, not in the crisis atmosphere of today.A NEW PATTERNOne outcome of the Asian crisis is likely to be economic growth driven more by domesticdemand than exports in the larger countries. In Japan, well before the crisis began, andeven before Japan’s own bubble economy had burst, it was clear that the export-drivenmodel that had served that country well since the early 1950s was no longer working.The pressures for change were both external, from countries no longer willing to absorbJapanese goods without Japan opening its own markets; and internal, from consumerswanting access to a wider range of products at reasonable prices. While the current plightof Japan’s economy was caused in part by the collapse of consumer demand, increasedconsumption has also been seen as a central and continuing part of the cure. Aware ofthe antagonism a new export drive would provoke among its trading partners, there hasbeen no attempt by the government to have the country sell its way back to health, whichwas the response during earlier, less-severe downturns.

Elsewhere in East and Southeast Asia, the pressures for internally driven growth will beexternal. Private capital inflows are unlikely to return to anywhere near the peak level ofUS $73 billion that flowed into Indonesia, South Korea, Malaysia, the Philippinesand Thailand in 1996, 9 and there is little scope for this to be offset by domestic savings.To meet the needs and expectations of their growing populations in the face of decreasedinvestment, governments will have to promote domestic consumption — either throughstimulation or by removing restrictions which have held back consumption. In turn, thiswill take domestic funds away from investment. This change in development strategy willbe reinforced by a tougher global export environment in the early years of next century.Chinese and Eastern European goods have elbowed their way into markets in the USand Europe previously the preserve of these Asian exporters, while the anemic Japaneseeconomy is unlikely to resume its role as a growth market for Korean or Southeast Asianproducts for some years yet. The less-developed states of Southeast Asia, which havelimited domestic demand, will still push export-led growth, but they account for relativelylittle in export flows and do not face the same market squeeze as their richer neighbours.China’s economic growth has been largely led by domestic demand and this will continue,though the sheer volume of its exports is a factor in forcing Southeast Asian countriesto change their strategies.55Increased domestic demand, whether in Japan, Southeast Asia, South Korea or China, opensopportunities for new markets for consumer products. Apart from foodstuffs, it is an areaCanadian business has not yet developed in Asia. Now may be the right time to startlooking for openings.

Canada has been most concerned aboutdealing with the underlying causes of domesticinstability that frequently provoke interstateconflicts and lead to the use of arms.In Asia, Canada faces a suddenly moreurgent challenge.

5REGIONAL SECURITYa dangerousneighbourhood57Asia became a much more dangerous neighbourhood in 1998. Whether applying thetraditional concept of military threats to state security or the broader notion of humansecurity championed by Canadian Minister for Foreign Affairs, Lloyd Axworthy, Asia hasmoved into a period of heightened tensions. Nuclear weapons tests by India andPakistan, and North Korea’s firing over Japan of a multi-stage missile, brought to an abrupthalt the brief period of relative stability since China sought to intimidate Taiwanesevoters in 1996 with missile tests in the Taiwan Strait. In Southeast Asia, and especiallyIndonesia, economic hardship has provoked domestic unrest and political instability.While the rapid social change of the past decade in Southeast Asia had generated tensionsthat were never far below the surface, confident governments delivering greater materialprosperity to increasing numbers of their citizens were able to keep these forces undercontrol. Economic contraction on a scale never considered possible has unleashed theanger of those who have suddenly lost wealth — or those who never had it.The situations in both South Asia and Southeast Asia involve Canada. In India and Pakistan,Canada carries a residual obligation, perhaps even guilt, as it provided India and Pakistanwith financial and technical help during the 1950s and 1960s to develop nuclear powerplants which eventually provided the fissionable material for India’s nuclear weapons. 1While Canada has stopped any assistance to those countries’ nuclear power programs, andhas pressed India and Pakistan to sign the Nuclear Non-Proliferation Treaty, we are partiallyresponsible for letting the nuclear genie out of the bottle in South Asia. It seems appropriatethat as these two new members officially join the nuclear club, Canada is becoming muchmore active in the debate on the control and eventual elimination of all nuclear weapons. 2In Indonesia, the focus of Ottawa’s aid program in Southeast Asia, Canada has a long historyof development assistance in civil institution building. The value of this effort is nowbeing put to the test as government cohesion weakens and a range of newly bornorganizations clamour for attention in the suddenly open political environment. The nextfew years will show if Canada’s efforts, modest though they are in the overall picture,have been worthwhile.An important factor in the heightened tension in each of Asia’s hot spots is the low levelof human security. The acute poverty the economic crisis has brought to parts of Southeast

58Asia is still less than the chronic levels in India or Pakistan or, in recent years at least,North Korea. And poverty, it seems, fuels everything from ethnic tensions and religiousextremism to insularity in foreign policy. Underlying the South Asian nuclear race is adeep enmity flowing from religious rivalry. North Korea’s dogged development of hightechweaponry is driven in large part by the commercial rationale that arms exports arethe greatest foreign currency earners for its otherwise stagnating economy. Arms controlmeasures, important as they are, deal largely with symptoms of poor human security.Reduced budgets in Southeast Asia in the next few years will probably do more than anycontrol efforts to dampen the arms-buying spree that has been underway there for someyears. However, in the absence of any regional security agreements, the diversion ofscarce public funds into defence and away from poverty alleviation will continue, if at areduced level. Poor, even worsening, human security will continue to be a threat to stability.In recent years Canada has been most concerned about dealing with these underlyingcauses of domestic instability that frequently provoke interstate conflicts and lead tothe use of arms. In Asia, especially over the next few years, Canada faces a suddenlymore urgent challenge.NUCLEAR FACEOFF IN SOUTH ASIAIn May 1998, when first India, then Pakistan, carried out a series of underground nucleartests, 3 one of the most adversarial international relationships since the end of World WarII entered a new and much more dangerous phase. India and Pakistan are now movingtoward deployment of weapons systems armed with nuclear warheads, introducing therisk of a war of miscalculation or limited exchange over control of the disputed northernborder territory of Kashmir. While both countries have possessed nuclear weapons capabilityfor some years, and each side has believed the other had them, neither country hasopenly deployed their capability in the past. Both countries have also tested missilescapable of delivering warheads up to 1,500 km. The situation is dangerous because ofthe enmity between two countries that have fought three border wars since 1947; thecontinual skirmishing in Kashmir; and the domestic political instability in each country,which could push their governments into jingoistic acts to win popular support. Whilethere were clear strategic objectives in the mutual demonstration of nuclear capability,there were also domestic political goals which led India to give up its policy of deliberateambiguity on its nuclear program. India’s fragile coalition government led by the HinduchauvinistBharatiya Janata Party (BJP) saw the tests as a promotion of Indian nationalismwhich would bolster its two-month-old administration. It appeared to have judgedcorrectly when it received an initial surge of public support immediately after the tests.The Muslim League government of Nawaz Sharif in Pakistan, under challenge fromextremists, had no real political option but to match India in demonstrating its nuclearcapability. The need for New Delhi and Islamabad to take notice of extreme nationalistviews is especially troubling. Ominously, after May’s nuclear tests, fighting along theborder intensified, culminating in a full-scale battle in early August. Kashmir remains apotential flashpoint for a nuclear exchange in Asia.Because India and Pakistan are neighbours, the game of nuclear deterrence is highlydangerous. For India and Pakistan, there is little possibility of the tactical use of nuclear

weapons. They will be designed and targeted largely for strategic use, and any exchangewould be very destructive, especially in human terms. Adding to the risk, neithercountry is thought to have fail-proof command and control systems, nor do they havesufficient warning time in which to assess whether a threat is real, imagined or anaccident. Consequently, the great danger is a war of miscalculation. An accidentalexplosion or even a terrorist attack at a missile factory could be perceived as a pre-emptivestrike, provoking an immediate missile launch in response. The flight time for a missilebetween New Delhi and Islamabad is estimated at four minutes. This compares with the30 minutes warning time the Soviets and the US had to adjust their response to anylaunch or incident during the Cold War. For this reason, a worried international communityhas pressured India and Pakistan to curtail their plans for nuclear deployment and includeKashmir in bilateral talks which have gone on intermittently since last July.59Complicating the situation is India’s apparent view of China as its main long-term strategicrival. In fact, Indian political leaders have used this as a justification of their nucleartests, much to the anger of Beijing. 4 New Delhi is concerned about the rise of China asa regional power, and especially its close ties to Pakistan. In addition, Beijing recentlyprovided technical equipment and assistance to Myanmar and is working with Myanmar’snavy in surveillance activities in the Bay of Bengal. In response, India last year establisheda new naval command based in Port Blair, the capital of the Indian territory of Andamanand Nicobar Islands. New Delhi believes that with Chinese missiles to the north inTibet, a nuclear-armed Chinese ally, Pakistan, to the west, and growing Chinese influencein Myanmar, it cannot be complacent about Chinese military intentions toward India.MISSILE ALERT IN NORTHEAST ASIAOn August 31, a multi-stage Taepodong 1 missile flew high over Japan’s northern Honshuand splashed down in the Pacific Ocean, 1,380 km from its launching pad in NorthKorea. The missile test confirmed that little has changed on the Korean Peninsula. Themilitary standoff, which has endured since a ceasefire halted the Korean War in 1953,continues. The ability of North Korea to play skillful diplomatic games to keep itsadversaries off balance continues. And the willingness of the North Korean leadership tosacrifice the welfare of its people — now facing their third year of famine — to thesingle-minded goal of gaining control of a reunited Korea continues. What have changedare the stakes in the game. While North Korea has had for two generations the capacity toinflict great damage on South Korea, it has now demonstrated a nascent ability to strikeat antagonists farther afield. Japan, its despised former colonial ruler, is the prime target.The security threat posed by North Korea’s missile technology and the suspicion that itmay also have nuclear capability was enough to persuade Japan, within weeks of themissile test, to join with the US in a US $15 billion project to develop a theatre missiledefence system. 5 Beyond demonstrating a new level of technical capability, the missiledoes not add to the threat to South Korea, as the North has had the ability to reach anytarget in the South with its Nodong 1 missile since about 1995. The greatest danger isthe possible transfer of the new missile technology abroad, notably to the Middle East.According to South Korea’s Unification Minister, Kang In Duk, North Korea in 1997exported missiles worth US $ 900 million. 6 That would make missiles the impoverished

country’s single largest export. Clients already appear to be interested in the Taepodong 1:there were reported to have been Iranian observers at the August 31 launch. 760Beyond the purely military aspects of North Korea possessing multi-stage ballistic missilecapability, the launch demonstrated Pyongyang’s finely honed ability to be unpredictable— a long-established diplomatic strategy. Over the years, North Korea has swung constantlybetween periods of belligerency and apparent moderation. This latest episode is incharacter. In 1994, Pyongyang ended a period of diplomatic standoff by agreeing to shutdown its Yongbyon nuclear facility, with its ability to produce plutonium, in return forthe US providing it with two light-water reactors, which yield very little plutonium:these were to be financed largely by South Korea and Japan, with smaller contributionsfrom many countries, including Canada. In addition, in an exercise of “executivediplomacy,” US President Clinton agreed to provide 500,000 tons of fuel oil a year whilethe new reactors are under construction. This was the so-called Agreed Framework. Sincethen, North Korea has been willing to meet with US and South Korean representatives todiscuss a range of topics, from a peace treaty that would formally end the Korean War, totourist exchanges with the South. It even issued an unprecedented apology to Seoulafter a North Korean submarine ran aground in southern waters in September 1996 andsome of the fleeing occupants fought with South Korean forces. The period of haltingdialogue coincided with the accession to power of Kim Jong Il after the death of his father,North Korea’s “Great Leader,” Kim Il Sung, in July 1994.The period of moderation began to falter in the first half of 1998, probably becausePyongyang anticipated a worsening political climate in the South as a result of theeconomic crisis. The inauguration of Kim Dae Jung as South Korean president in lateFebruary also posed a new challenge by changing entirely the rules guiding North-Southrelations. Kim enunciated Seoul’s most creative approach ever toward the North with his“sunshine policy,” which delinked economic ties from political détente. Essentially itprovided for maintenance of the military position of armed vigilance by the South, witha guarantee not to try to undermine North Korea, plus a relaxation of laws so that forthe first time South Koreans would be able to undertake trade and investment with theNorth without prior government approval. Questions of reunification were to be postponedfor a decade or more.Almost as soon as Kim took office, Pyongyang became more provocative in its foreignrelations. On March 6, a North Korean Foreign Ministry spokesman pulled out the nuclearcard which had been used successfully in blackmailing concessions from the US in 1994.He suggested the lack of progress on the light-water reactors and delayed US oilshipments might force Pyongyang to reactivate its own nuclear program. In mid-August,US spy satellites detected a huge underground site under construction at Kumchangni,northwest of the Yongbyon complex, which the US suspected to be a reactivation of theNorth’s nuclear program. Then, on August 31 came the firing of the Taepodong missile— timed at the start of the meeting of North Korea’s Supreme People’s Assembly whichappointed Kim Jong Il to the position of head of state that had been vacant since thedeath of his father. The launch also had a domestic political motivation. Pyongyangclaimed that it had actually launched a satellite which was broadcasting patriotic tunes

ack to earth — reminiscent of China’s first satellite launch during the Cultural Revolution.The US has not discounted the possibility that the missile may have been, in fact, afailed satellite launch attempt, which would suggest an even greater technical capacitythan the acknowledged missile performance showed.The heightening of military tensions runs counter to political openings by Pyongyang tothe West that would have been unimaginable a few years ago. Moves are under way,supported by the US and South Korea, to bring North Korea into the IMF, the WorldBank and the Asian Development Bank. North Korea is still courting foreign investmentfor its section of the stalled Tumen River growth triangle spanning North Korea, Chinaand Russia. And aid workers continue to have access to the North with food and medicalsupplies to help mitigate the effects of the lingering famine. However, none of thesepromising developments negate the fact that a country which has shown itself imperviousto international opinion now possesses missile technology which threatens its neighboursand challenges international efforts to contain the spread of these aggressive weapons.61HUMAN SECURITY IN SOUTHEAST ASIAOver the past few years Canada has championed the cause of greater human security.Minister of Foreign Affairs Lloyd Axworthy has promoted the concept that most conflictin the post-Cold War world comes from intra-state tensions that arise from threats tothe individual rather than to the state. These can come from ethnic or religious rivalry,sudden economic or political change, environmental degradation, illegal immigration oreven criminal activity. Conflicts of this type can be reduced or eliminated by improvingthe security of the individual in their everyday life. While Mr. Axworthy has his critics, 8the economic crisis in Southeast Asia, and especially events in Indonesia which havebrought a sudden increase in poverty, seem to support his case by demonstrating thatthe opposite effect (worsening human security promotes conflict) is true. The economicbreakdown has caused widespread unemployment and returned millions of Indonesiansto the poverty they had only recently escaped, sharpening communal tensions that hadbeen blunted by the prosperity of the past decade. As the World Bank has noted: “The crisishas exacted an enormous social cost — especially for the poor and has, for somecountries, heightened social conflict.” 9According to the most recent estimate by the World Bank, Indonesia’s GDP in 1998 willturn out to be about 15% less than in 1997. 10 In another study, the bank suggested a 12%contraction in the economy would almost double the level of poverty in the country(which the bank earlier calculated was at 11.3% in 1996). In Jakarta the number of peopleliving on less than US $1 a day was expected to climb from 3.8% in 1997 to 8.3% in1999. More than three million children are at risk of being deprived of further schooling bythe crisis. 11 Anger at the poverty, joblessness and loss of hope resulting from the economicimplosion are destabilizing. Rioting and looting in Jakarta and across the country has asmuch to do with ethnic and religious rivalries and jealousies as it does political protest— though it is also clear that these rivalries have been exploited by political groupsfollowing their own agendas. While the integrity of the state itself was not initiallythreatened — the change of leadership from Suharto to Habibie was carried outconstitutionally — subsequent unrest in Jakarta and outlying provinces has made Indonesia

a source of instability in Southeast Asia with a worst-case possibility of a collapse of law andorder, and ethnic Chinese refugees fleeing for safety to neighbouring countries.62Indonesia is only the most obvious case. Political demonstrations in Malaysia after thefall and arrest of Anwar Ibrahim, while neither violent nor on the same scale as thosewhich brought down Suharto in Indonesia, were inconceivable had the economic crisisnot undermined the livelihood of tens of thousands of ordinary citizens. Nor wouldMalaysia have rounded up thousands of illegal Indonesian immigrant workers and shippedthem back to their own country. In Thailand, which has seen the least civil disorder ofthe severely affected Asian countries, the World Bank reports in rural areas that “amongthe older male youths, drug dealing has become an increasingly attractive source ofincome. Increased competition for survival, frustration and psychological stress are allleading to heightened household and community tension. This tension has led toincreased domestic violence and with fewer jobs, neighbors who once cooperated arenow competing. Stealing, crime and violence, are on the rise.” 12 In South Korea,soaring layoffs and 8% unemployment, where almost none existed, have brought violentlabour confrontations.Canada can play a role in mitigating these types of instability by helping governmentswith the institutional framework needed to administer effective schemes that supportthe destitute and the unemployed or help keep children of the “new poor” at school.Even in India and Pakistan, poverty alleviation, though a daunting challenge, will helpease the communal tensions which lie at the root of their nuclear race. Canada alonedoes not have financial resources on the scale needed to make much of an impression.International institutions must help with most of the funding. But Canada has a longhistory at home, and through its development assistance program, of implementingschemes for human support, and has earned a high reputation in Southeast Asia forthese programs. This is perhaps the greatest contribution Canada can make to stabilizingAsia’s security situation.LEARNING TO TALKThe testing of sophisticated weapons in South Asia and Korea demonstrated the weaknessof non-proliferation efforts in Asia, one of the regions where it is most needed. Whileneither India nor Pakistan are signatories of the Nuclear Non-Proliferation Treaty, theyexploded nuclear weapons in the certain knowledge that they would incur painful economicsanctions by the US (which was joined in this action by Canada and many other countries).Only after they completed their tests did they bow to international pressure and agree(subject to conditions which may yet not be met) to join the Comprehensive Test BanTreaty when it is ratified later this year. Indeed it may be that the inevitability of thetreaty coming into force was the “tightening noose” that compelled India to depart fromits long-standing policy of nuclear ambiguity. North Korea is not a party to the MissileTechnology Control Regime, so, not facing export controls, it has become a supplier ofmissiles and technology to clients in the Middle East. It, too, proceeded with its Augusttest knowing that it would jeopardize US and Japanese assistance under the 1994 AgreedFramework. The influence of major industrialized states with the three countries beforetheir weapons tests was limited. In the wake of the tests it has been shown to be

virtually nil — especially with Pakistan which the US attempted to cajole and bribe intonot following India’s nuclear lead. The greatest concern now is that the world may bepowerless to stop the expanding trade of ballistic missiles and, potentially, nucleartechnology from Asia to the Middle East.In Asia, efforts to defuse tensions and resolve security disputes are especially difficultbecause of the lack of an institutional basis for cooperative security. Countries throughoutthe region have been acquiring sophisticated weapons to match their growing economicstrength, but transparency and confidence-building arrangements have been resisted asnot being part of the region’s “strategic culture.” They have created and institutionalizeda range of forums for dialogue — the ASEAN Regional Forum, South Asian Association forRegional Cooperation, Asia-Pacific Economic Cooperation, even ASEAN itself — but noarrangements that guarantee or restrict behaviour in anything but economic matters.Economic tensions and changes of government in several countries have even thrown doubton the cohesion of ASEAN as a vehicle for regional security discussions.63The nations of the region, few of them much more than 50 years old, are highly sensitiveto questions of sovereignty, which has led to a tradition of non-intervention in the affairsof neighbours. In this environment, third-party mediation of security disputes is viewedwith suspicion. Yet multilateral institutions devoted to resolving security threats areneeded now more than ever. In its 1994 White Paper on Defence, the governmentacknowledged the need to “play a more active role in (Asia-Pacific) security” in such areasas cooperation and engagement with Asian countries. 13 The time is now appropriate forCanada, which boasts no military or territorial involvement in the region, good relationswith virtually all the players, and a track record as a peacemaker, to try to initiate a securitydialogue at government level among the countries involved. There are risks. The sensitivityto outside intervention could antagonize some, like Malaysia’s Dr. Mahathir, and wouldprobably not be welcomed by China. Also put out may be Moscow, Seoul and Tokyo, whoeach put forward plans last year for some form of Northeast Asian security institution — noneof which included Canada. But the risks of not soon developing an institutional securitystructure in the region are greater than those raised by offending a few Asian governments.

The development of Asian courses andcurriculum materials has lost momentum,victim of the pressures on the resources ofgovernments and educational systemssince the mid-1990s.

6EDUCATIONasian crisis inour schools65The foundation to Canada’s continued and effective involvement with Asia is its nextgeneration. Young men and women who are at school, college or university today andin the next few years will be taking up their places in business and government as Asiatakes its place as a centre of world power, the current economic downturn notwithstanding.Many of this new generation of Canadians should have a broad understanding of thehistory, culture and languages of the region. In the early 21 st century, China willhave a greater economic and political influence on Canada than the United Kingdomor France. It is not unreasonable to expect that subjects like modern Chinese historyshould have a place in the curriculum. The Asian financial crisis and painful economicadjustments flowing from it must not be allowed to deflect the interest of educators andstudents from continuing to direct more attention to the study of Asia.In the mid-1980s, Canadian governments and educators seemed to discover the rapidlyexpanding economies of Asia. As a result, courses covering Asia, particularly at thesecondary-school level, enjoyed a surge in popularity. Many school boards and classroomteachers became anxious that their students be given the opportunity to study thecultures, geography and languages of Pacific Rim countries. In 1989, the Governmentof Canada began an ambitious five-year program, Pacific 2000, to make Canadians“more aware of and knowledgeable about the Asia-Pacific area” and to help Canadians“overcome the cultural, language, economic, political and institutional barriers” tointeracting with Asia. 1 A key component of that strategy was to support the developmentof Asian studies in Canadian educational institutions. The Asia Pacific Foundation hada major role in managing the educational component of Pacific 2000. Today the resultsof that program and of earlier local initiatives are evident in schools across most of thecountry. Asian content is found in the curriculums of all provinces. The study of Asianlanguages in secondary schools is at an all-time high. 2 In several provinces there is asmall core of enthusiastic teachers who continue to show a commitment to the ideasbehind Pacific 2000. However, the good news stops here.Today the development of Asian courses and curriculum materials has lost momentum,victim of the pressures on the resources of governments and educational systems sincethe mid-1990s. Teachers have been laid off, schools closed and the overall range ofcourses reduced as subjects were combined to save money. Teaching resources for Asian

66courses have been particularly hard hit, with the single exception of languages. A studyby the Asia Pacific Foundation in late 1998 found that “many courses which hadpreviously ‘stood alone’ were amalgamated with others in order to remain active on theelectives list. In most cases, former Asian courses have now been brought under the umbrellaof ‘global education’ or simply added as units within history or geography.” 3 Studytours for teachers to Japan, such as those sponsored by the Japan Foundation, have beendropped and a similar program to South Korea, offered by the Korea Foundation, isseverely curtailed. This has had a double impact: not only are individual teacherslosing the chance to experience first-hand the countries and cultures they teach about,but conditions attached to some of the visits required participants to prepare a subjectunit based on their experience. While teachers specializing in Asian studies see theincorporation of former full courses into units of broader courses as a creative way ofdealing with real financial constraints, there is concern about any further erosionof support for Asian curriculum. In some areas with a significant Asian immigrantcommunity, local residents and businesses have given financial assistance to ensure coursesremain available. While the funding is welcome, it raises the risk that Asian studieswill become tagged as “courses for immigrant kids.” They are not. They should beelectives for all students.Not all jurisdictions have viewed Asian curriculum content with the same priority, andnot all jurisdictions have cut back to the same degree. As education in Canada isstrictly a provincial responsibility, school curriculum varies from province to province.To determine the level of Asian content in high schools today, it is necessary to look atthe situation in each province.PACIFIC PORTAn environment of tight budgets for developing or even maintaining Asian studies curriculum inCanada is likely to stay with us in the foreseeable future. At the same time, the need to keep up to datewith the rapidly changing Asian background is pressing. One solution to the challenge is to betteruse existing resources. Nationwide surveys carried out in 1995 1 and 1998 2 found a high degree ofcommitment and enthusiasm among a small group of educators who “have looked into the futureand seen a Canada that is no longer Eurocentric but economically and politically active in the nationsof the Pacific Rim.” 3 A database maintained by the Asia Pacific Foundation shows that there are morethan 170 such educators, however they are scattered nationwide. Some have led workshops at localprofessional gatherings or travelled to other provinces to share their knowledge and techniques.Some have developed their own courses. Many more teachers in BC, Manitoba, Ontario or elsewherehave insights and materials that can be shared with colleagues in other provinces if the obstaclesof time and money can be overcome.Technology is the path around these obstacles. The Internet has opened access to materials worldwide,but most of these resources are not in a format suitable for a Canadian classroom. So the Asia PacificFoundation has developed a pilot project for an Internet site, called Pacific Port, which will allow bothteachers and students to share ideas and materials tailored to the needs of Canadian senior secondaryclasses involved in Asian studies. Once operational later this year, it will be accessible to any Canadianschool linked to the Internet. Up-to-date information, innovative courses and current student concernscan all be tapped through the site.The project is a legacy of the Asia Connects/Cherchons l’Asie youth conference held in Winnipeg in1997 as part of Canada’s Year of Asia Pacific. Students attending the conference and hundreds more

FROM WEST TO EASTThe four western provinces have maintained the strongest Asian content in their schools,with the Asian trade focus of BC and Alberta one likely explanation for this emphasis. Notsurprisingly, BC has the largest Pacific Rim content in its curriculum. However, with theexception of language teaching, resources and emphasis are well below the level of theearly 1990s, when scholarships were available for students and teachers to study in Asiancountries. The province has disbanded its secondary school-level international educationbranch and the ministry no longer develops and supplies learning resource materials forAsia-Pacific courses. The strength of teaching which continues in this area results inpart from the enthusiasm of individual teachers, many of whom participated in the earlierstudy tours and teacher exchange programs with Japan and South Korea. Another factorin some school districts is the support given by strong Asian-Canadian communities, notjust for language training but for historical and cultural courses as well.67Language training is the one area of Asia-Pacific curriculum that is growing in strengthin BC, in part as a result of the swelling Asian immigrant population. In the currentschool year, about 7,450 BC public high school students are studying Japanese, 50%more than in 1992-93 when Pacific 2000 support was at its height. Japanese, secondonly to Spanish as the favoured choice of a foreign language, can be studied at grade12 level and is tested in a provincial exam, making it eligible as a qualifying foreignlanguage for university entrance. In addition, there are about 5,000 students enrolledin Mandarin classes, up from 1,409 in 1992, while a small number are taking Punjabi,which was not available in 1992.linked electronically from remote sites in all provinces affirmed their interest in learning about Asiabut complained of the lack of resources, especially on current affairs. Pacific Port is designed to fillthat gap in a way that appeals to young people. A unique feature is the availability of real-time linkswith partner schools in Japan and China to meet the need expressed by students to have more directcontact with young people in Asia. It also helps answer another request raised at the Asia Connects/Cherchons l’Asie conference to help students, particularly those in small, rural and homogeneouscommunities, to have the curriculum, the resources and the opportunities to become knowledgeableglobal citizens. Modern multimedia and communications technologies provide dynamic methodsfor educators to arrange cross-cultural encounters in their own classrooms.The obstacles teachers face of finding up-to-date curriculum materials for Asian studies programsis not new. Printed information, where it is available, is soon outdated by the pace of change inthe region. In Canada the problem is compounded by a dearth of resources which look at Asiantopics in terms of Canadian involvement. To help overcome this gap, the Asia Pacific Foundation twoyears ago introduced Pacific Rim Profiles, a series of economical booklets providing very currentinformation on 15 Pacific Rim countries. These are now being used in more than 300 Canadian schoolsand colleges in courses ranging from social studies through geography and anthropology to tourism.Material extracted from the series will be included in the resources of Pacific Port to make it evenmore widely available.

68Alberta maintains the strongest official support for Asian studies among the provinces.It has a separate international education branch in its ministry, which covers the costsof all related curriculum development. Ironically, some of the materials being used inAlberta classrooms are those developed in BC when its interest in Asian studies washigher. There are units specifically on modern Asian history in social studies courses inall secondary school grades. Two-thirds of the province’s school boards offer someform of additional international education, frequently in response to pressure fromimmigrants who want their children to learn something of their Asian background andculture. Alberta also maintains a student exchange program with schools in the northernmostJapanese island of Hokkaido. Since 1995 the province has been developing Japaneselanguage programs for use at the secondary level. While the numbers enrolled this year,at 975, are well below the BC level and are down from the peak of 1996-97, they stillrepresent an 80% increase in students taking Japanese language from 1992-93. Another300 students are taking Mandarin language courses. Many secondary schools offer“locally developed” courses in Chinese studies, while Edmonton Public School District,the second largest in the province, even offers a Chinese-language immersion program,with all subjects taught in Mandarin. In Jasper, Korean is taught at the local school inresponse to requests from the large number of Korean businesspeople who have settledthere. Banff’s large Japanese community has similarly persuaded the school board tooffer Japanese-language classes.In the prairie provinces of Saskatchewan and Manitoba, while numbers are small,enthusiasm for Pacific Rim studies remains strong, with schools in both provincesoffering full courses in Asian studies. In Saskatchewan, several high schools offer locallydeveloped Asian studies units at the grade 11 level, while grade 10, 11 and 12 socialstudies curriculums all contain Asian themes. However, with financial cutbacks in thepast two or three years, the education ministry is unable to expand learning resourcesand development of these courses has stagnated. In the area of languages, Japanesecourses offered in grades 10, 11 and 12 are slowly attracting a greater number of studentsand Mandarin is also available at grade 10 level.In Manitoba, one private and seven public high schools are very actively involved inAsian studies, offering courses covering a broad spectrum, from geography throughliterature to cooking and martial arts. Many of these are locally developed courses,reflecting the enthusiasm of individual staff members. Five schools are participating instudent exchanges with twinned schools in Asia, mainly in Japan. These involve studentsfrom each country spending up to 10 months in the partner school. In addition toJapanese and Mandarin, Filipino is offered in one school, reflecting the high concentrationof Canadians of Philippine origin. This has led to the development of courses inFilipino heritage and culture in one Winnipeg high school. Teachers in Manitobainvolved with Asian studies programs believe interest among students is holding steadyor, in some schools, actually rising. However, lack of funding is generally holding backfurther curriculum development.When Asian studies were first offered in Canada, Ontario became one of the mostactive provinces in initiating and developing courses at the secondary school level. In part

this was a result of the province’s sizable population of Asian background. It alsoreflected the work of a group of dedicated teachers who created a number of excitingprograms for students, augmenting those developed by the Ontario Ministry of Education.In the Toronto area, this group formed an Asian Teachers’ Association, which was responsiblefor many creative writing ventures, including publication of Asian Voices, an anthology ofshort stories by Asian-Canadian writers. There were numerous student and teacherexchanges with Asian schools; Ontario twinned with partner schools in Asia; and summerlanguage schools were organized in several Asian countries.It is impossible to assess the state of Asia-Pacific curriculum in Ontario at the moment.The province’s education system is undergoing a sweeping restructuring. Budgets havebeen cut drastically; schools closed; teachers laid off; and the entire elementary andsecondary curriculum is under revision to accommodate the abolition of Ontario AcademicCourses (grade 13) from September 1999. Beginning at that time, some Asian courseswill be eliminated and part of their subject matter incorporated into a new globaleducation program, similar to one launched in BC. Until details are published, it is notpossible to evaluate the Asian content remaining or the resources available to teach them.However, Ontario will still have the skilled and dedicated teachers willing to provide thegreater degree of Asian focus that they believe is needed by today’s students.69East of Ontario, Asian studies have never been strong, and there is no indication thatthis situation will soon improve. In Quebec, most international curriculum has concentratedon French-speaking nations in Africa and the Caribbean. Currently, secondary school socialstudies courses feature only scattered references to Asian topics. The final report of arecent task force on curriculum reform recommended creation of a new, optionalcourse at grade 12 level, entitled Understanding of the Current World, which conceivablymight include some Asian studies. A decision on the course has not yet been taken. TheQuebec education ministry does not offer any courses in any Asian languages.The only Maritime ministry to have a province-wide course on Asia is Nova Scotia, whichprovides grade 10 Asian geography, though in all the Atlantic provinces there are coursesin social studies, history, geography and business studies that contain units relating toAsia. As in other provinces, teachers with a special interest in the region — many ofwhom have travelled on the exchange visits available in the early 1990s — have developedoptional “local” courses on Asian topics. The Atlantic provinces recently have joinedforces to develop a course on “Atlantic Canada in the Global Community,” which willencompass some aspects of the region’s relations with Asia. However, most teachers reportthat with the decline in funding, and more recently the Asian economic crisis, interest in newPacific Rim program development is waning.One interesting example of innovative linkage with Asia is in New Brunswick. Overthe past 10 years the province has opened one school in Hong Kong and two in Chinateaching the New Brunswick curriculum to local high school students. The schoolsemploy teachers from the Atlantic provinces, giving them the opportunity to experienceAsia first hand. It was the intention to develop a full student exchange program withthe two schools in China, however Immigration Canada, which is very reluctant toallow Chinese students to enter Canada, has refused to issue visas to any of the students.

Finally, Canada’s two territories naturally face a need to provide special programing forthe unique ethnic and geographical challenges they encounter, adding to pressures onlimited resources and class time. Nevertheless, Yukon Territory, using largely BC coursematerials, and Northwest Territory, using mostly Alberta curriculum, both offer Asia-Pacificunits in courses like social studies, economics and marketing.AS OTHERS DO IT70Canada is not alone in having policymakers who see a need to prepare their students fora world in which Asia plays a much larger role. In the US and Australia, the two countriesmost nearly comparable to Canada, there are many people concerned about increasing theawareness and understanding of Asia among the next generation.In the US, as in Canada, education is a state responsibility, so curriculum content can varygreatly across the country. Surprisingly, it seems that the greatest Asian content in highschool grades is in southern states like Alabama, Georgia and Virginia and the midweststate of Wisconsin. Concentrating on regions adjacent to Canada, the New England statesgive Asia rather more attention than do our Maritime provinces, and New York includesmore Asian content in its curriculum than Ontario has done recently (although theCanadian province has far more Asian language students than its much larger USneighbour). The school systems in Michigan, Minnesota and Montana seem to havecomparable course content to our Prairie provinces, except for Alberta. On the west coastCalifornia and Washington generally include topics on the Pacific Rim as units in broadercourses, much like Canada, while Oregon high schools offer a number of Asia-specificcourses. As in Western Canada, there appears to be a growing interest in the west coaststates in teaching Asian languages, particularly Japanese, Mandarin and Korean, withconsiderable interest also in Vietnamese. A useful comparison, which emphasizes thestrength of Asian-language training in BC, is with Oregon, which has a similar west coastlocation and a population only about 15% less. In 1998-99, fewer than 3,000 high schoolstudents are studying Japanese, while 130 are studying one of several other Asian languages.In BC, some 12,500 students are enrolled in Japanese, Mandarin or Punjabi courses, thethree Asian languages taught in its high schools.However, all this pales in comparison with the concerted effort made by Australia to raisethe Asian literacy of its population. The Australian government is working in partnershipwith state administrations to provide expanded Asian language and studies programs“to improve Australia’s capacity and preparedness to interact internationally.” It hastargeted four languages — Japanese, Mandarin, Indonesian and Korean — for major effort.To date about $150 million has been invested in the strategy. The program seems to behaving an impact. In 1997, 44% of grade 12 students taking a second language werestudying an Asian language. An impressive 6.3% of all graduating students took a coursein an Asian language. By comparison, in BC, which boasts the strongest Asian languagesprogram in Canada, 26% of grade 12 students in 1996-97 taking a second language studiedJapanese or Mandarin. Out of the entire BC grade 12 population, only 2.5% ofstudents took an Asian language.

It is not surprising that Canada does not come anywhere near matching the educationaleffort of Australia. Australia’s proximity to Asia means it will always have a closer economic,social and security relationship with the region than will Canada. Still, the investmentin Asia-related curriculum resources and teacher training in Australia continues to grow.In Canada, it is in danger of shrinking.The impact of provincial initiatives in Asian studies in the early 1990s and of the supportprovided by the federal government under Pacific 2000 raised Asian secondary schoolprograming in Canada to a higher level than in the past. However, the general cutbackin education resources has brought further progress to a halt. New ways have to be triedto restore the momentum of a few years ago. It would be shortsighted for Canada toback off now from its commitment to raise a new generation better informed about Asia.The Asian economic crisis is certainly more than the “glitch” in the region’s growth chartas some had assumed a year ago. However, it must not become a reason to reduce the Asiancurriculum in our schools. As Canada Asia Review argues elsewhere, the Asian Century hasnot been abandoned: its starting date has just been moved back to its original schedule.71

The Asian recession and its impact on Canada,particularly the western provinces and someresource industries, has made more people awareof Asia and our transpacific ties.

ASIA PACIFIC FOUNDATION OF CANADA7the newest challenge73Fifteen years ago, the Canadian parliament recognized the importance of the changesunderway in Asia Pacific and the impact they would have on this country. The challenge,it saw, was for Canadians to be aware of these changes and react appropriately to theopportunities — and risks — they presented. The path chosen, and supported by all theparties in the House of Commons at that time, was to set up by Act of Parliament anational, independent, non-profit organization to tackle the challenge of bringing awider understanding of Asia to Canadians. This was the genesis of the Asia PacificFoundation of Canada.Over the years, APFC has sought to carry out its mandate in a variety of ways, alwaysfocusing on the need to provide Canadians with the information and understandingnecessary to deal successfully with Asia. The past year has seen a rapid change inCanada’s transpacific relations, and a need for us to provide a more sophisticated levelof information than in the past. The Asian recession and its impact on Canada, particularlythe western provinces and some resource industries, has made more people aware ofAsia and our transpacific ties. At the same time, they have realized there are newcomplexities in that relationship. To better help Canadians understand these complexities,and to keep them abreast of the rapidly changing environment in Asia, the APFC in1998 undertook a substantial change in its activities. We withdrew from most of thesponsorship or delivery of general awareness programs which had been our role for 13years, activities which many other organizations have taken up in that time. Weconcentrated instead on the development and distribution of information and analysisintended especially for businesspeople, policymakers and educators. Our flagshipannual publication, Canada Asia Review, explored some of the longer-term issues for Canadaarising from the recession, while a new analytical newsletter, Canada Asia Commentary,brought fax and Internet-delivered analysis of the implications of recent developmentsfor Canada. At the same time, our subsidiaries, the GLOBE Foundation of Canada andthe Canadian Education Centre Network, continued to provide services to specificsegments of the community.Overall, the Foundation delivers Canadians with the information and networks neededto function effectively in Asia Pacific today and tomorrow. Our main areas of activity are:

RESEARCH AND ANALYSIS / APEC STUDY CENTRE IN CANADAThe Research and Analysis activities of APFC are a focal point for strategic research onCanada’s economic, political and social relations with Asia Pacific. R&A provides succinctand timely analysis for business and government, and enhances links among policy, businessand research communities on matters relating to Canada’s relations with the region. A keyaspect of this work is the Foundation’s role as the Asia Pacific Economic Cooperation(APEC) Study Centre in Canada. The Study Centre promotes collaborative research anddisseminates information and analysis on APEC and on priority issues for Canada’sinvolvement in this forum.74Research and Analysis is the hub of a national research network — the APF ResearchNetwork — and manages a database of about 500 academic experts and other regionalspecialists from across Canada who are involved in Asia Pacific strategic and policy research.Through this informal organization, the Foundation initiates research on priority regionalissues for Canada, carried out by leading Canadian scholars. Research findings aredisseminated through the Asia Pacific Papers series. The Research and Analysis grouporganizes seminars and roundtables to bring together businesspeople, NGO representatives,academics and policymakers to examine and exchange ideas on our relationship withAsia. In 1998, the Foundation hosted a series of roundtables across the country on variousaspects of the Asian crisis.A range of business and education products support the ongoing work of other Foundationprograms. These include: the Pacific Rim Profiles series and accompanying Teacher’s Guide,providing information on 15 regional countries for senior secondary students; a new Briefingsfor Business series, bringing together the need-to-know business information on 12 Asiancountries and their economic and trade relationships with Canada; and the CurriculumResources Database of source material and course outlines.CANADIAN EDUCATION CENTRE NETWORKThe Foundation’s wholly-owned subsidiary assists recognized Canadian educational andtraining institutions in marketing their services to international students, and to companiesand institutions with short-term training requirements. This fee-for-service network hascentres (CECs) in Seoul, Taipei, Kuala Lumpur, Jakarta, Bangkok, Singapore, HongKong, New Delhi, Beijing, Canberra, Mexico City, Buenos Aires, São Paulo and Santiago.Through its website the CEC Network promotes Canadianeducation in countries where it does not have a presence. In addition, it mountsinternational education agent fairs and conferences.The CECs provide support and a local presence for the growing number of Canadianeducational institutions interested in forging or strengthening education links globally.Centres supply promotional material and counselling services, organize education fairs,seek educational and training contracts and support the delivery of courses by Canadianinstitutions offshore.The Network was established in April 1995, linking three pilot operations in Seoul,Taipei and Kuala Lumpur. Roughly 100 organizations from across Canada — universities,

colleges, secondary schools and language schools — became subscribers in the first yearof operations. The success of these first three centres led to a rapid increase in thenumber of subscribers to the Network. Today, there are more than 230 clients servedby the centres. By promoting and marketing Canada as a destination for internationalstudents and as a source for international corporate and group training, the CEC Networkis positioning Canada as a leader in the multibillion dollar international educationservice industry. Just as importantly, the program recognizes the great social and commercialbenefits, both in Canada and globally, of helping to educate the world’s next generationof leaders.GLOBE FOUNDATION OF CANADAThe wholly-owned subsidiary of APFC manages the GLOBE series of conferences andexpositions on business and the environment. These events are held every two years inVancouver and attract the participation of more than 10,000 experts and environmentalcompanies from 75 countries.75The GLOBE Foundation’s work encompasses a broad base of programs that engage industry,government agencies, the corporate sector and the financial community in environmentand energy business opportunities around the world. These programs supply researchand analysis on international environmental markets; coordinate environmental trademissions; and bring together buyers and sellers of environmental technology. With suchinitiatives as the EXCEL Partnership (Excellence Through Environmental Leadership),GLOBE is also working with senior executives to create a new generation of corporateenvironmental leaders in Canada. Other international projects include facilitation of therestructuring of Romania’s hydro power sector. For more information on the GLOBEFoundation, e-mail or visit the GLOBE website .SECRETARIATSIn line with its goal of building transpacific business networks, the Foundation is theCanadian secretariat for three Pacific Rim economic groupings: the Pacific EconomicCooperation Council (PECC), the Pacific Basin Economic Council (PBEC) and theAPEC Business Advisory Council (ABAC).PECC brings together academic, business and government officials (in a non-official capacity)from 23 Pacific Rim economies to promote economic cooperation and policy coordinationin the region. As an official observer of APEC, PECC provides expert analysis and policysuggestions to governments on trade and investment issues. Through its connections tothe region’s business communities, PECC also coordinates industry-government dialoguesin partnership with APEC.PBEC is a private-sector association of more than 1,100 business leaders from 20 Pacific-Basin economies that promotes the expansion of trade and investment through openmarkets. The PBEC Canadian Committee hosts a number of business events throughoutthe year, including the annual Asia Pacific Roundtable between business representativesand the Minister of International Trade.

ABAC is a group of senior business executives who advise APEC leaders on the Pacificbusiness community’s priority concerns about trade and investment liberalization andbusiness facilitation. The ABAC secretariat provides research and analytical support tothe group’s APEC-wide work program and assists the three Canadian ABAC members intheir consultations with Canada’s business community.THE CANASIAN BUSINESSWOMEN’S NETWORK76CABN is a CIDA-funded project assisting the growth of businesswomen’s associationsin Southeast Asia. It develops and delivers training, networking events and informationtools for women entrepreneurs in Southeast Asia. CABN also works with Canadianbusinesswomen’s groups to forge links with their ASEAN counterparts and to hostincoming missions.EDUCATION PILOT PROJECTTo encourage the study of Asia-Pacific topics in Canadian high schools, the Foundation hasdeveloped a pilot project, Pacific Port . The initiative is a legacy ofthe national multimedia youth conference, Asia Connects/Cherchons l’Asie, organized byAPFC as part of Canada’s Year of Asia Pacific. Pacific Port, an international “town” incyberspace, gives young Canadians and educators access to resources and programs on Asiausing web and multimedia technology. Exploiting these Pacific Port tools, nine schools inCanada, Japan and China are collaborating to produce web-based projects through desktopvideo-conferencing, web chats, discussion groups and e-mail.MEDIA PROGRAMThe Foundation seeks to raise Canadian awareness and understanding of currentdevelopments in Asia by building a network of Asia-literate journalists in Canada. TheFoundation offers assignment programs for Canadian journalists, selected throughnational competitions, to undertake two-week working visits to Japan and Southeast Asiato produce stories on topics of their choice for publication in Canada.STRUCTUREThe Foundation is guided by a board of directors of up to 31 volunteer members fromacross the country who represent government, academia and the private sector. MichaelE. J. Phelps, Chairman and Chief Executive Officer of Westcoast Energy Inc., of Vancouver,is Chairman of the Board. Dr. William Saywell, a Sinologist with a distinguished careerin academia, is President and Chief Executive Officer.APFC receives financial support from the federal government, the provinces of BritishColumbia, Manitoba and Quebec and a number of private companies. A significant portionof its revenue comes from fees paid for Foundation, GLOBE and CEC Network programsand services. Consolidated revenue of the APFC and its subsidiaries is around $15.3 millionin its current year. Together APFC, GLOBE and the CEC Network employ about 80 people.The Foundation’s headquarters are in Vancouver, with offices in Manitoba and Quebec, aswell as the 14 CEC offices in Asia, Latin America and Australia.

NOTESCHAPTER 11. In 1997, Canada’s market share was 1.52%. In 1998 it was 1.02%. The 11 markets are China, Hong Kong(SAR), India, Indonesia, Japan, Malaysia, Philippines, Singapore, South Korea, Taiwan and Thailand.2. The Scotiabank Commodity Price Index fell from 116.329 in September 1997 to 103.757 in September 1998.3. See John Kirton and Yuen Pau Woo, Great Expectations? Shaping APEC’s Second Decade (Vancouver: Asia PacificFoundation of Canada, 1999).4. Jim Storey and Yuen Pau Woo, Glimpses of a New Asia: The Changing Business Environment (Vancouver: Asia PacificFoundation of Canada, 1999).CHAPTER 1 (SIDEBAR)1. Department of Foreign Affairs and International Trade, Canada Announces Further Actions on Burma, 7 August1997 No. 130. DFAIT. 2 November 1998.772. Department of Foreign Affairs and International Trade, Canada and China to Co-Host Human Rights Meeting, 27February 1998 No. 40. DFAIT. 4 November 1998..CHAPTER 21. For a fuller analysis of the impact of Japan’s banking and tax policies on the economy see: Akio Mikuni, Japan:The Road To Recovery (Washington: Group of Thirty, 1998).2. As it turned out, a considerable number of ministry officials were prosecuted or dismissed for having acceptedlavish gifts from the banks they were supposed to regulate; however, the overall policies of the ministry were notchallenged.3. Hiroshi Takeuchi, “Regrets Concerning Our Long-Term Credit Bank,” Chuo Koron (Tokyo: December 1998),pp. 32-43. Translated by FBIS as document FBIS-EAS-98-326.4. Morgan Stanley, Morgan Stanley 30 October 1998 — Global: Crunch Watch (electronic newsletter).5. Nihon Keizai Shimbun, morning edition, 20 October 1998.6. In fact the Sime Bank merger with RHB Bank failed to be completed as the RHB group was unable to raisethe finance needed to recapitalize Sime Bank. Late in the year, RHB itself had to be bailed out by thegovernment.7. The International Covenant on Economic, Social and Cultural Rights and the International Covenant onCivil and Political Rights.CHAPTER 31. All trade figures in this chapter were taken from: Industry Canada. Strategis. 18 December 1998.2. Asia Pacific Foundation of Canada, Canada Asia Review 1998 (Vancouver: Asia Pacific Foundation ofCanada, 1998), p. 16.3. China, Hong Kong (SAR), Indonesia, Japan, Malaysia, Philippines, Singapore, South Korea, Taiwan and Thailand.4. This is the best period over which to measure the trade impact. During the last quarter of 1997, therecession had already begun to slow Asian demand.5. Vancouver Sun, 24 July 1998, p. C2.6. APFC, Canada Asia Review 1998, p. 63.7. Excluding the Philippines.8. Vancouver Sun, 8 October 1998, p. A1 and A5.

NOTESCHAPTER 41. Calculated using the percentage of 1996 GDP required to restructure the finance sector of Indonesia,Malaysia, South Korea and Thailand as determined by: Global Economic Prospects 1998/99. World Bank. 15December 1998. 2. The Bell Canada, Newbridge, Seagram and Abitibi-Consolidated groups together invested more than $550million in takeovers in South Korea, China, Thailand and Indonesia in 1998.3. Bank for International Settlements. 16 December 1998. 4. Foreign Affairs, December 1995 (New York: Council on Foreign Relations, Inc., 1995).785. International Monetary Fund, International Capital Markets (Washington: International Monetary Fund, 1998),p. 17. The IMF estimates that in 1995 and 1996, about US $16.6 billion of capital flows that were “unreported,often because they are seeking to avoid official controls,” left the countries of Asia worst hit by the crisis. In1997, there was an additional outflow of US $19.5 billion.6. For a comparison of the efficiency of open and relationship-based economic systems see Raghuram G. Rajanand Luigi Zingales, Which Capitalism? Lessons from the East Asian Crisis. 1998. Forthcoming: Journal of AppliedCorporate Finance.7. For examples see: Akio Mikuni, Japan: The Road To Recovery (Washington: Group of Thirty, 1998).8. Quoted by: Sukhumbhand Paribatra, “Preparing ASEAN for the 21st century,” The Business Times (Singapore,29-30 August 1998), p. 11.9. IMF, International Capital Markets, p. 13.CHAPTER 4 (SIDEBAR)1. Anti-Corruption Policy. Asian Development Bank. 26 November 1998.2. Internet Center for Corruption Research. Transparency International and Goettingen University. 25 November 1998.3. For details see Organisation for Economic Co-operation and Development. OECD. 9 December 1998.4. For details see The International Code of Ethics for Canadian Business. University of Ottawa. 15 December 1998.<>CHAPTER 51. In the mid-1950s, Canada provided India with a CIRUS (Canada-India-United States) nuclear researchreactor under the Colombo plan. In exchange, India gave written “peaceful assurances” that the reactor wouldnot be used for weapons purposes. In 1974, violating its commitments to Canada and other nuclear suppliers,India detonated a nuclear device using plutonium reprocessed from the spent fuel in the CIRUS reactor. Canadasimilarly provided Pakistan with a KANUPP power reactor in 1965 in exchange for assurances that it would beused only for peaceful purposes. When Pakistan was unwilling to agree to requirements of strengthened Canadiannuclear surveillance policy after 1976, Canada ended nuclear cooperation. According to the International AtomicEnergy Agency, no material taken directly from the KANUPP facility was used in Pakistan’s May 1998 nuclear test.2. For instance see the report: House of Commons Standing Committee on Foreign Affairs and InternationalTrade, Canada and the Nuclear Challenge: Reducing the Political Value of Nuclear Weapons for the Twenty-First Century,December 1998. Parliamentary Internet, 10 December 1998.3. On May 11, India detonated three nuclear devices at a test site in Rajasthan. On May 13 it detonated twomore devices. Pakistan responded on May 28 with the test firing on five devices at a site in Baluchistan, followedby one more test on May 30.4. Rahul Bedi, “Interview with Indian Defence Minister George Fernandez,” Janes Defence Weekly, 1 July 1998, p. 32.5. Kensuke Ebata, “Japan Joins USA in Theatre Missile Defence Research,” Janes Defence Weekly, 30 September1998, p. 3.

NOTES6. “North Korea Demands $(US) 1 Billion to Suspend Missile Program,” The Korea Times, 4 September 1998, p. 1.However, this figure seems somewhat exaggerated as South Korea’s central bank estimates total North Koreanexports in 1997 were US $910 million.7. Joseph Bermudez, “North Koreans Test Two-Stage IRBM over Japan,” Janes Defence Weekly, 9 September 1998, p. 26.Iran has previously bought North Korean missiles and technology, along with Pakistan and Syria.8. For example, see Fen Osler Hampson and Dean F. Oliver, “Pulpit Diplomacy,” International Journal,Summer 1998, p. 379.9. Global Economic Prospects 1998/99, The World Bank Group, 5 January 1999.10. Global Economic Prospects 1998/99, The World Bank Group, 5 January 1999, p. 9.11. Social Crisis in East Asia, The World Bank Group, 5 January 1999.7912. Social Crisis in East Asia, The World Bank Group, 5 January 1999.13. Department of National Defence. D-Net. 23 December 1998.CHAPTER 61. Department of Foreign Affairs and International Trade, Canadian International Development Agency, and AsiaPacific Foundation of Canada, Evaluation of Pacific 2000 and the Asia Pacific Foundation of Canada (APFC) (Ottawa:1994, unpublished).2. In the 1997-98 school year, there were approximately 9,200 students learning Japanese and 35,500 studyingChinese — either Mandarin or Cantonese — at Canadian public secondary schools. In 1992-93, the last year forwhich full figures are available, the equivalent totals were Japanese 5,081 and Chinese 4,055.3. Glenn Wall, A Review of Asia Pacific Curriculum in Canada’s Secondary Schools (Vancouver: Asia Pacific Foundationof Canada, 1998, unpublished).CHAPTER 6 (SIDEBAR)1. Jill Beaulieu, New Brunswick - Asia Pacific Report (New Brunswick: New Brunswick Department of Education,1995, unpublished).2. Glenn Wall, A Review of Asia Pacific Curriculum in Canada’s Secondary Schools (Vancouver: Asia Pacific Foundationof Canada, 1998, unpublished).3. Beaulieu, Asia Pacific Report, p. 3.

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APPENDIXCANADIAN DIRECT INVESTMENT IN ASIA BY ECONOMY (C $MILLIONS)1991199219931994199519961997AustraliaChinaHong Kong (SAR)IndiaIndonesiaJapanMalaysiaSingaporeSouth KoreaTaiwanOther Asia/Oceania2,15425632849002,1821131,962371427922,56543883988772,521902,119511948372,4832251,5321109092,845922,2171231501,2732,7612572,0901691,2593,4831182,3731371921,9413,1273752,3511791,4722,724962,3371462522,6022,8553892,5961221,3852,6851132,1781222452,7583,1193772,7351251,4672,7291282,2601311992,71183Total Asia9,02310,27811,95914,78015,66115,44815,981Canadian Investment inAsia as % of World Total8.279.209.7710.339.708.738.25Source: Statistics Canada, International Investment DataASIAN DIRECT INVESTMENT IN CANADA BY ECONOMY (C $MILLIONS)1991199219931994199519961997AustraliaChinaHong Kong (SAR)IndiaJapanMalaysiaSingaporeSouth KoreaTaiwanOther Asia/Oceania741542,52585,596188626032497825492,358115,9624710257998267651452,49696,24973153-21021,4147722322,73056,620104201441211,0324052272,890-16,861613561091171,1474251672,65697,054125283153114668283792,892127,123121238181125822Total Asia9,81710,33611,40411,86112,17211,65411,876Asian Investmentas % of all Sources7.267.498.067.697.266.686.33Source: Statistics Canada, International Investment Data

APPENDIXASIAN TOURISTS VISITING CANADA (IN 000s)Origin199219931994199519961997ChinaHong Kong (SAR)JapanSouth KoreaTaiwanOtherAll Asia32126496464414689035123506494814390442136563101711601,073521836681421101901,345642097291911462201,559801536251761512281,41384Sources: Canadian Tourism Commission, Market Research PlanningASIAN STUDENTS TO CANADAOrigin1997NUMBER OF INQUIRIESJan-Sept1998% Change1997/19981997STUDENT VISAS ISSUEDJan-Sept1998% Change1997/1998JapanSouth KoreaTaiwanHong Kong (SAR)ChinaThailandMalaysiaIndiaSingaporeIndonesiaTotaln/a25,7948,0046,746n/a2,8452,664n/a2,4571,92850,438n/a15,0185,1696,9893,2075,2042,3164,5242,6211,76046,808n/a-21.7-15.925.6n/a137.115.9n/a45.114.121.8n/a8,3542,4232,36768954144937836834715,9163,8572,5471,9201,8281,24723517442024716512,658-6.3-61.2-5.7-3.2168.2-52.0-52.333.3-18.2-48.4-25.0Source: CEC NetworkCANADA’S TOP ASIAN IMMIGRATION SOURCESOrigin1994 199519961997Total% BusinessVisa HoldersHong Kong (SAR)IndiaChinaPhilippinesTaiwanPakistanSouth KoreaVietnamSri LankaTotal37,68416,93312,31415,4456,5593,2832,9334,9903,895104,03631,46515,69712,41111,0797,6453,4243,4583,7202,88091,77929,80419,91814,4519,50613,1797,0433,1372,4322,403101,87322,00418,63416,7738,85713,29110,3523,9911,7502,32297,974120,95771,18255,94944,88740,67424,10213,51912,89211,500395,66227. Citizenship and Immigration Canada

APPENDIXASIAN ETHNICITY OF MAJOR CANADIAN CITIES (% of population)Ethnic OriginVancouverCalgaryTorontoMontrealHalifaxChinese (includes Taiwanese)East IndianFilipinoJapaneseKoreanVietnameseOther Southeast AsianOther Asian16. Population1,813,935815,9854,232,9053,287,645329,750Source: Statistics Canada, 1996 CensusNotes: Figures are taken from the total responses category. Multiple responses may be given. The1996 census was the first year the category “Canadian” was offered.PER CAPITA INCOME MOVEMENTSGNP Per Capita(In Current US $)GNP Per Capita, Adjusted forPurchasing Power ParityCountries1995199719951997ChinaHong Kong (SAR)IndiaIndonesiaJapanMalaysiaPhilippinesSingaporeSouth KoreaThailandCanada62022,99034098039,6403,8901,05026,7309,7002,74019,38086025,2803901,11037,8504,6801,22032,94010,5502,80019,2902,92022,9501,4003,80022,1109,0202,85022,77011,4507,54021,1303,57024,5401,6503,45023,40010,9203,67029,00013,5006,59021,860Source: World Bank, World Development Report 1997 and 1998Notes: PPP estimates of GNP per capita are calculated by converting GNP to US dollars usingPurchasing Power Parities (PPP) instead of exchange rates as conversion factors. The resulting estimatesare expressed in international dollars, a unit of account that has the same purchasing power over totalGNP as the US dollar in a given year. World Development Report 1997.

APPENDIXCANADA’S BILATERAL OFFICIAL DEVELOPMENT ASSISTANCE TO ASIA, 1992-1997 ($000s)Country1992/931993/941994/951995/961996/9786Asia RegionalASEANBangladeshCambodiaChinaIndiaIndonesiaLaosMalaysiaNepalPakistanPhilippinesSingaporeSouth KoreaSri LankaThailandVietnamOther AsiaTotal ODA to Asia% of Cdn. ODA to Asia35,9048,51490,0393,67763,05042,38241,5151,09610,97611,95825,21230,4915131258,33123,7535,7441,302404,58221%43,57610,16868,3556,10771,29158,51638,4508077,0498,5231,55238,315733896,39218,36811,4371,037390,76519%37,2268,63456,0625,24492,69729,51729,8487857,8046,00711,31430,582363276,24419,5899,6251,185352,75317%29,7218,35974,2213,52270,86351,74421,9101,3354,1196,092-6322,4464591,0367,74316,03512,386624332,55213.5%25,2225,07067,9354,56252,68615,96525,1651,2105,05210,13713,15023,82701,2075,83814,49617,680909290,11111.9%Source: Historical ODA System Database, Canadian International Development Agency, 1998.GROWTH IN SELECTED COUNTRIES (REAL GDP, % PER YEAR)1988 1989 1990 1991 1992 1993 1994 1995199619971998AverageGrowthChinaIndiaIndonesiaJapanMalaysiaSingaporeSouth KoreaTaiwanThailandCanadaUSA11.310. Asian Development Bank, Bank of Canada, World Bank, IMF, The Economist, Far Eastern Economic Review.Notes: All Asian data (except Singapore and Taiwan) 1988 -1993 is taken from the World Bank, World Tables 1995.Singapore and Taiwan 1988 -1993 is taken from the ADB, Asian Development Outlook 1990 and 1995/1996. All Asiandata (except Japan) 1994 -1996 is taken from the ADB, Asian Development Outlook 1998. Canadian data 1988 - 1997is taken from the Bank of Canada Review 1995 and 1998. USA data 1988 and 1989 is taken from the IMF, World EconomicOutlook, 1993. USA data 1990 - 1997 and Japan Data 1994 - 1997 is taken from the IMF, World Economic Outlook,May 1998. 1998 forecasted growth rate for the USA was taken from The Economist, January 9, 1999.1998 forecastedgrowth rates for Indonesia, Malaysia and South Korea were taken from the Far Eastern Economic Review, January 14, 1999.1998 estimated growth rates for all other countries were taken from domestic news sources January 1999.

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