Make your own free website on

Asian Miracle

1.      Introduction

The development of East Asia countries from the 1960s to mid of 1990s attracted international recognition for their rapid economic growth.  Economists were amazed by the substantial structural change and industrialization of the East Asia countries, which contributed significantly economic progress of the region.  The East Asian Miracle (EAM) published by the World Bank identified eight high performing Asian economies (HPAEs): Japan; the four first generation Newly Industrializing Countries (NIC・s) or .tigers・: South Korea, Taiwan, Hong Kong and Singapore; and the three second generation NIC・s: Malaysia, Indonesia and Thailand (Jomo, 2001).  In the study, the World Bank firmly believed that the experience of these Asian countries constituted a viable model for other Third World countries. 

However, there were widely arguments and criticisms about this East Asian Model.  In the article of Frozen Miracle, Woodall (1998) argued that .there is no such thing as an East Asian Model・.  This paper attempts to investigate whether there was an East Asian Model comparing Hong Kong with the other HPAEs in general, and whether Hong Kong should emulate the model of any HPAEs based on the findings.

2.      The East Asian Model

In the last two to three decades, the Asian economic performance in terms of growth rates had far outstripped that of the rest of the world as shown in Figure 1 (Jerram et al, 1997).  The study of EAM identified four functional state interventions compensating market failures were the common features of the growth (Jomo, 2001).  These policies included macroeconomic stability and export dynamism; institutional basis for growth; human and physical capital accumulation; and efficient allocation and productivity change (The World Bank, 1993).  Jerram et al (1997) argued that while there were such common features, it is important to recognize that there were also major differences in the development paths of each of the Asian countries.


2.1  Macroeconomic stability and export dynamism

Macroeconomic stability helped the HPAEs achieve high rates of savings and investment from the fostering of more open economies and growth.  This included money and credit growth limits, budget and fiscal discipline, and low inflation (Hutchison, 2001). 

Particular concerns were the limit to external debt and managing exchange rate to reduce vulnerability and facilitate export boom.  Before 1997 Asian financial crisis, Indonesia, South Korea, Malaysia and Thailand all had large government guaranteed external debt; while Hong Kong, Singapore and Taiwan did not (Hutchison, 2001).  Unlike the other East Asia Countries, Hong Kong operates a fixed exchange rate system linked to the US Dollars.  With its strong foreign exchange reserves (Figure 2), speculators would find it very difficult to break the peg (Woodall, 1998).  Hence, Hong Kong was able to avoid currency depreciation, while the other HPAEs have depreciated their currency significantly during the crisis. 

Export dynamism was manifested in the HPAEs・ relatively low barriers to trade, business-friendly environment, and general political stability (Millmow, 2002) to lure foreign direct investment (FDI).  In reality, there was tremendous contrast in the FDI policies.  South Korea was xenophobic (FDI was 2 percent of its gross domestic capital formation); Singapore was more open (about 25 percent); while Hong Kong was ultra open to foreign capital inflows (Bhaskaran, 2002; Jomo, 2001).  However, there were clear cases of government-led export promotion in most countries such as South Korea and Taiwan, the government support of industry through credit, information sharing, creating contests, etc (Hutchison, 2001). 

2.2  Institutional basis for growth

The HPAEs managed productive government-private sector cooperation to facilitate growth.  For example, there were relatively few distortions to the price mechanism and export-friendly policy regimes, etc.  In addition, there were flexible policies promoting economic stability through egalitarian approach to distributing growth.  South Korea and Taiwan used land reform to help the poor; Hong Kong and Singapore used public housing; Malaysia used affirmative action; and Indonesia used subsidies (Millmow, 2002).  There were also clear advantages of an honest, competent, efficient Civil Service in Hong Kong, as well as Japan and South Korea to support the growth (Hutchison, 2001).

In terms of domestic competition policy, Hong Kong had some cartels, otherwise free and was vibrant as the early globalizers (Bhaskaran, 2002).  Taiwan was generally free.  Singapore was multinational or global corporation dominated.  South Korea was small-medium enterprises and consumers squeezed.

2.3  Human and physical capital accumulation

The steady physical and social infrastructure such as human and physical capital accumulation improved the general standards of education, training and employment.  Jomo (2001) argued that in reality, except Hong Kong, most physical infrastructure in other HPAEs  has been provided by governments until fairly recently.

In order to assert a well-educated and skilled labor force, governments spent heavily on public education.  Woodall (1998) argued that this was true of Hong Kong, Singapore, South Korea and Taiwan, but less true else where in the region.  According to Woodall (1998), Indonesia, Malaysia and Thailand have suffered serious shortage of skilled labor in recent years.  Hence, in the long term, skill shortages will make it hard for these countries to climb up the technological ladder to make more advanced goods, and hence reducing their competitive advantages.

Physical capital accumulation was made by policies that encouraged savings.  According to Jomo (2001), much of the East Asian countries・ large savings was actually comprised of corporate or firm savings, rather than just household savings.  Household savings were high in Malaysia and Singapore only.  It is because Malaysia and Singapore used mandatory or forced savings schemes.  Nevertheless, the large contribution of high corporate savings implied that firms had often been able to enjoy every high profit rates due to government interventions, subsidies, tax breaks and other incentives for particular types of investments favored by the governments (Jomo, 2001).

Governments also protected local banks from competition and introduced sound regulation to help banks earned healthy returns, and ensure healthy banking sectors (Millmow, 2002).  The reality was that some of these economies suffered from serious rigidities in their labor and capital markets which left them ill-equipped for a downturn.  The South Korean Chaebols・ debt problems reflected their lack of accurate consolidated accounts; while same problem also happened in Japan (keiretsu) with a lack of transparency, imprudent lending and nepotism banking system, and .communal capitalism・ in Indonesia (The Economist, 1995; Bartlett et al, 1998).  The strength of Hong Kong in this area was its healthy and transparent financial regimes comparing to other HPAEs. 

2.4  Efficient allocation and productivity change

One major role of the governments was to achieve efficient allocation and increase productivity.  The governments tried to maintain free market mechanisms to ensure the market function relatively freely to prevent inefficiencies from developing. 

In fact, each HPAEs・ government had different starting points and evolved responses to the environment, and some had played a vital role in directly resources and promoting economies (Bhaskaran, 2002; Jerram et al, 1997).  According to Jerram et al, economic policies vary hugely from relatively liberal Hong Kong (laizzez-faire) to heavy-handed South Korea (government allocated capital and import barriers) and Malaysia; from widespread government corruption in Indonesia to squeaky-clean Singapore (hyper-active government), while Taiwan used import barriers in early stages and policies focused on some sectors.  Each HPAEs also adopted different protectionism policy to domestic production.  South Korea and Taiwan adopted high protectionism, while Hong Kong and Singapore were very low (Bhasakaran, 2002).

In capital market, South Korea was heavily distorted by the governments, Taiwan was with some political influence, Singapore was relatively free, and Hong Kong was free as the main allocator of capital (Bhaskaran, 2002).  Hence, entrepreneurs in Hong Kong had been left largely to their own devices comparing to other HPAEs in their capital investments (Temple, 1997).  The role and performance of public investments including state-own enterprises (SOEs) also varied.  In Japan, Hong Kong and South Korea, SOEs were hardly important, but it was extremely important in Singapore and Taiwan due to political factors and economic considerations (Jomo, 2001). 

3.      Should Hong Kong emulate any East Asian country・s development experience?

Taking the consideration of the above findings, it does not make sense for Hong Kong to emulate any particular economy in East Asian economy.  Bhaskaran (2002) emphasized that pragmatism is prevailed in any model.  Hence, Hong Kong should continue to efficient and effective utilize its unique features to build its own competitive advantages.  This includes its freest economies, robust legal system, stringent market regulatory system, liberal foreign exchange regime, level playing field, free flow of information, clean government, sound financial position and simple taxation system.

However, the world is rapidly transforming from an industrial economy to a knowledge-based economy. World economic development is changing from a quest for resources to a quest for human talents.  The emphasis in the past was on a fine division of labor, where today it is on multi-skilling.  The number of people employed by large corporations has dramatically decreased.  As a result, more and more people have become self-employed and started their own small and medium enterprises.  These will become a more prevalent trend in Hong Kong.

In order to maintain the competitive advantage and continue to prosper, Hong Kong should expand the investment in education (ie upgrading the quality of teachers and nurturing talented students); enhance infrastructure (ie improving transport, land formation and ports facilities); improve the business environment (ie tourism-related development programs and setting up funds to boost training, opening up markets, implement projects and programs to lift competitiveness); and finally carry out necessary structural adjustments and reforms within the government to improve the quality and efficiency of the administration.

4.      Conclusions

This discussion implies that there is no single East Asian Model as each HPAEs has its unique development with different manipulation of government interventions that contributed to its growth.  Some countries such as Hong Kong, Singapore, Malaysia, South Korea, and Taiwan boasted good physical infrastructure at the beginning of the growth period, while had various historical and political reasons relatively equal income and asset distribution such as South Korea and Taiwan (Millmow, 2002).  So to conclude the findings, no single model can accommodate all the different experiences of Asia.

Hong Kong・s externally-oriented economy is greatly affected by global developments.  The hardships that Hong Kong currently faces stem from both cyclical and structural factors.  Hong Kong does not need to emulate any East Asian country・s development experience, rather it calls for a stronger financial sectors and responsiveness of the HKSAR to the dynamic environment changes, which are vital to help and meet the challenges of the future.

Reference List

Bartlett, Bruce; Glassman, James; Hadar, Leon; Lindsey, Lawrence; Safire, William; Zakaria, Fareed (1998), .Asia Unravels: Keep the Baby, Dump the Bathwater・, The American Enterprise, [Online, accessed on 8 October 2002]

Bhaskaran, Manu (2002), .Is The East Asian Economic Model Still Relevant?・, SunSITE Singapore, [Online, accessed 9 October 2002]

Deutsche Bank (2000), .Hong Kong・s Annual Economic Data・, Global FX Outlook & Strategy, Deutsche Bank

The Economist (1995), .The Miracle of the Sausage-Makers・, The Economist, December 9

Hutchison, Michael M (2001), .East Asian Miracle・, University of California Santa Cruz, [Online, accessed 10 October 2002]

Jerram, Richard; Hodges, Michael; Turner, Luis; Kurz, Richard (1997), .Political Environment for Global Business: Is There an Asian Economic Model・, London School of Economic and Political Science, [Online, accessed 7 October 2002]

Jomo, KS (2001), .Growth After the Asian Crisis: What Remains of the East Asian Model・, United Nations Conference on Trade and Development, [Online, accessed 8 October 2002]

Millmow, Alex (2002), .The Rise and Rise of the Asian Pacific Economies・, Asian Business Environment Study Guide, Charles Sturt University, Australia

Temple, Jonathan (1997), .St Adam and the Dragons: Neo-Classical Economics and the East Asian Miracle・, Oxford Development Studies, [Online, accessed 10 October 2002]

Woodall, Pam (1998), .Frozen Miracle: A Survey of East Asian Economies・, The Economist, Volume 346

The World Bank (1993), .The East Asian Miracle: Economic Growth and Public Policy - Summary・ (1993), The World Bank, Washington, pp 1-34

Back to International Business Article List