Those of you with a good memory will recall the havoc of the Asian Crisis of 1997-1998. Over-borrowed Asian countries were forced to devalue their currencies compared to the dollar, following a bubble originating in property development and inflated asset prices, stoked by relatively cheap dollar-denominated borrowing. Over-capacity in many industries, built on the back of over-enthusiastic production expansion in the expectation of spectacular future growth, combined with a collapse in demand to calamitously unbalance markets: Building materials were especially badly-hit, with some materials taking a decade or more to grow back to a situation of supply-demand balance. Only towards the end of the 2000s were some Asian markets seriously thinking about new production facilities - after their break-neck expansion of the 1990s.
I recall visiting a number of countries in the aftermath of the crisis. At one enormous building materials production facility, I joined the plant manager in his office to look out on the newly-levelled construction site for the next phase of factory expansion. Concrete foundations had been poured, and steel reinforcement bars poked up out of the ground, waiting for the next phase of construction. However, no construction workers were to be seen anywhere. I asked where they might be. "Ah," he said, somewhat embarrassed, "Extended worker holidays."
China was not part of the problem in 1997. Indeed, it was near the start of a 15-year double-digit growth spurt that would take it from a per capita GDP of around US$2000 in 1997 to closer to US$12,000 today. China did not originate, exacerbate or suffer from the Asian Crisis in 1997. It sailed on, magnificently.
However, in 2015, we find ourselves in a very interesting situation, with some of the tables turned. China (as I have long foretold) has been obliged to face up to the impossibility of its ambitions. Having vastly over-invested in industrial production facilities (flooding the markets with building products, TVs, and practically anything else you care to mention), it has arrived at the point where it is not only not sensible to invest any more, but instead it is more sensible to start to dismantle or demolish these self-same factories: Some factories have gone with a bang, with dynamite. China has built colossal infrastructure projects, including roads, railways, bridges and dams, using vast quantities of cement and concrete: It has built huge new cities that have sucked-in building materials including wallboard, bricks, re-bar and more. However, China has over-built, yet again, and is now famous - or infamous - for its ghost cities, built for hundreds of thousands of inhabitants, but with barely anyone living there. It may be years before they welcome inhabitants - but equally, like the speculative housing developments of Ireland that have now been bulldozed back into the soil, they may never be occupied. China has gone from being the engine of world growth (the apparent saviour of the world economy during the dark days of the Great Recession of 2007-201?) to being its brake. All those foreign companies that built capacity to cater for Chinese demand (eg Rio Tinto and BHP Billiton, among others) are having to write-down their investments and take a big hit. In this case, once the smoke blows away, there are only mirrors.
Apart from Japan which remains in a 20-year recession, the rest of Asia is in a very different position to where it was in 1997. The indebtedness of southeast Asian nations is now generally lower than in 1997 (although it is now higher than before the Asian Crisis as a share of GDP in Malaysia, Taiwan and Korea). Given that it is only 18 years since the Asian Crisis, it seems that the lessons learned back then have not yet been forgotten: Crazy capacity expansion 'to defend market share' has not taken place as it did in the years running up to 1997. At the same time, in those 18 years, population growth has added millions of new consumers: 7m in Thailand, 10m in Malaysia, 15m in Vietnam, 20m in the Philippines and 30m in Indonesia - 82m new people in just those countries alone. In the same time, their total GDP has hugely increased - by US$150bn in Vietnam, by US$200bn in the Philippines and in Thailand, by US$250bn in Malaysia, and by over US$600bn in Indonesia - that is US$1.4 trillion in economic growth.
Back in May 2015, Global Gypsum reported that USG-Boral planned to shift its focus to southeast Asian economies, with Boral's chief executive saying that Indonesia, Thailand and the Philippines would be the 'sweet spot' for the company in the future as it aims to build its overseas business to account for half of its total revenues: "We're going to follow the demand curve associated with the increased penetration of wallboard in those Association of Asian Nations (ASEAN) countries. If we hold on to our share, it's going to be an interesting roller coaster ride that will be quite profitable for Boral," said CEO Mike Kane. It seems that we are not currently set to repeat the mistakes of the (first) Asian Crisis.
