2 July 2007 marks the 10th anniversary of the Asian financial crisis, which began with the devaluation of the Thai baht. Visiting the country 10 years later, the situation has changed quite dramatically from those panic-stricken days.
For example, on the day I arrived, Wall Street tumbled nearly 150 points on the Dow Jones Index in response to worries over the US housing crisis. Yet next morning, Asian stock markets sailed on serenely – Hong Kong, Singapore and Malaysia all saw new all-time highs, whilst Tokyo and Taipei rose to seven-year highs.
This would have been inconceivable 10 years ago, when the value of many local currencies collapsed under the pressure of the fixed rate to the US$. Now it is more a question of the currencies being too strong for local comfort, as governments seek to maintain their export competitiveness. Indeed, local commentators worry that the future may be one where the Asian economy becomes ‘too hot’ – with the Bangkok Post suggesting that the decision to ‘never again’ risk a major currency devaluation has led to the Region now facing the opposite type of risk, one caused by “artificially low currencies, a record $3.4 trillion in reserves and export-dependent economies”.
There are signs, however, that governments are responding to this new threat by increasing expenditure on local infrastructure, education and health services. In Thailand, for example, the Finance Ministry is planning to run a fiscal deficit of 1.8% of GDP for the next financial year, which starts in October. This is still below the level of deficits common in many Western countries, but it signals a growing confidence that increased local spending can be afforded again. So, in its own way, does the decision of the Chinese government to spend $20 million on paving the road to Everest base camp, in order to ease the path of the Olympic flame on its planned journey next year to the peak of the world’s highest mountain, en route to Beijing.
Another sign of changing priorities came with Wednesday’s surge in PetroChina’s share price to a record high, on news that it will raise $5.6bn to develop new oilfields and construct new refineries. The money will also help finance its proposed 6 new ethylene cracker projects – in Daqing, Jilin and Fushan in the north; Dushanzi and Lanzhou in the north west; and Sichuan in the south west – by 2010. The rise meant that PetroChina overtook Shell to become the world’s second largest oil company by market capitalisation. It is now worth $274bn, compared to $257bn for Shell, although ExxonMobil remains the clear leader with a $484bn value.
Somehow, one can’t imagine either Shell or ExxonMobil’s share price replicating PetroChina’s 8.2% rise on news of planned fund-raising to finance long-term expenditure such as this. And that fact alone, 10 years on, demonstrates the confidence that has currently returned to Asian markets.