During the weekend of February 14-15, roughly 700 students, academics, professionals, and entrepreneurs attended the 2009 Harvard Asia Business Conference at the Harvard Business School campus in Cambridge, MA. Now in its 18th year, the conference is an annual event organized by students at the Harvard Business School, Harvard Kennedy School of Government, and the Harvard Law School. Over the course of the weekend, approximately ninety leaders from business, government and academia across Asia and the world shared their insights on the role of Asia in today’s world—one fraught with major financial, political, social, environmental, and economic challenges. In particular, the 2009 Harvard Asia Business Conference provided observers and participants an opportunity to reflect on the current global financial crisis and the role of Asia going forward. Despite constant reminders of the deteriorating business and economic environment, many panelists expressed cautious optimism. The conference—which attracted students and observers not only from the Boston area but from throughout the United States and Asia —was not only a venue for serious debate, but an opportunity to cultivate professional connections and make new friends.

To coincide with this event, the Harvard Asia Quarterly published its Winter 2009 issue entitled, “The Global Financial Crisis.” In this issue, we explore the impact of the global financial crisis on major Asian economies including South Korea, Japan, China and Southeast Asia. On behalf of our readers, we extend our thanks to the organizers and sponsors of the Harvard Asia Business Conference for their support of the Harvard Asia Quarterly Winter 2009 issue.

As a proud media sponsor of this year’s conference, HAQ dispatched staff members to several of the weekend’s major speeches and discussions.What follows is a short summary of keynote remarks made during the 2009 Harvard Asia Business Conference:

KEYNOTE 1: Thierry Porte, Research Associate, Program on US-Japan Relations of the Weatherhead Center and the Reischauer Institute, Harvard University. Former President and Chief Executive Officer of Shinsei Bank, Limited.

By: Lisa Thomas, Graduate School of Arts & Sciences

Speech: “Lessons from the Japanese Banking Crisis”

Mr. Thierry Porte, former President and Chief Executive Officer of Shinsei Bank Ltd.,  highlighted several key lessons that the U.S. can take from Japan’s economic woes of the 1990s and early 2000s to help resolve its current financial crisis. After providing a brief history of Japan’s crisis, he acknowledged the differences that exist between the two situations before pointing to the similarities and outlining lessons the U.S. can take away from Japan’s case. In addition, he praised Japan for its handling of their crisis in the face of constant international criticism and given the lack of overseas assistance or any form of blueprint.

Differences between the current U.S. crisis and that of Japan include, among other things, the global reach of the current U.S. crisis compared to Japan’s far more localized problems. Mr. Porte also pointed out that the U.S. government has been quick to take action in the face of crisis, compared to Japan’s slower response. Still, important similarities cannot be ignored including a bursting of major asset bubbles, broken financial systems stemming from serious risk management blunders, a lack of regulatory oversight, and the need for significant de-leveraging.

Mr. Porte went on to review and divide the history of Japan’s financial crisis from 1992 to 2004 into four distinct phases. He referred to the first phase, from 1992 to 1994, as “Signs of Trouble.” The second phase, from 1995 to 1996, was described as “Deepening Desperation,” while the third phase between 1997 and 2001 was described as the “Raging Crisis.” Finally, the fourth period, between 2001 and 2004, was termed “Success and Reform At Last.” 

Mr. Porte then highlighted key lessons that can be gleaned from Japan’s experience of financial crisis to better understand and resolve the current U.S. financial crisis. First, public anger against bank bailouts is a normal part of the process and will take time to overcome. Second, the four phases necessary to fix troubled banks are to inspect books for asset clarity, inject capital, eject bad assets from the books, and finally to allow newly capitalized institutions to make money.  Third, private sector money will follow only after public sector clarity of the books is achieved. Fourth, deleveraging is a difficult process and can have negative impacts on the real economy. And fifth, Japan provides a clear blueprint for recovery and reform of a banking crisis. Specifically, the blueprint includes the following factors: 1) an economic strategy to improve the supply side of the economy; 2) safety nets; 3) capital injections with proper conditionalities; 4) strong political leadership to build public support; 5) strict asset assessment, and; 6) asset purchases by the public and private sectors to rid the system of bad assets.

Mr. Porte concluded his presentation by suggesting that the U.S. could take the opportunity to learn from Japan’s history to take action that will ultimately lead to economic recovery.

EXECUTIVE ROUND TABLE PLENARY : Takatoshi Kato, Deputy Managing Director, International Monetary Fund; Toby S. Myerson, Partner, Paul, Weiss, Rifkind, Wharton & Garrison LLP; Jeffrey Shafer, Vice Chairman of Global Banking, Citi. Moderator: F. Warren McFarlan, T.J. Dermot Dunphy Baker Foundation Professor of Business Administration and Albert H. Gordon Professor of Business Administration, Emeritus, Harvard Business School.

By: Julia Joo-A Lee, Kennedy School of Government

Professor Warren McFarlan of HBS opened the panel with a discussion of the current global financial crisis. Panelists shared their insights regarding the financial turmoil and discussed its economic implications for Asian countries. 

Mr. Kato, Deputy Managing Director of the IMF, started with his observation that Asia has been hit hard by the global financial crisis.  In the region, both business and consumer confidence has weakened and exchange rates have been pressured.  He also pointed out that recent events dismantle the myth that the Asian economy is insulated from the rest of the world.  First, Asia’s trade exposure to the West has increased; intra-regional trade has increased, but intra-regional export growth remains correlated with U.S. imports. Second, Asia’s financial integration has increased as has its exposure to changes in investor sentiment. Third, the availability of foreign exchange reserves has decreased because Asian economies have been using their reserves, and this has not insulated them from the on-going crisis.  Mr. Kato argued that recent events have demonstrated the strong need for early warning capabilities at the IMF.

Mr. Shafer, Vice Chairman of the Citibank, warned that the global economic distress would change the landscape of the financial services in the near future.  He argued that bond investors and banks are still extremely risk-averse and that, “…investors stopped seeking a return on capital, but only care about return of capital.”  As a result, national governments have become the last resort for both lending and spending.  After introducing unprecedented actions taken by U.S. policymakers, including the fiscal stimulus package, he predicted that there will be 1) increased government control over financial institutions; 2) less leverage in the financial system; 3) more economic nationalism; 4) more efforts to re-establish market forces, and; 5) more rebalancing of roles in the international financial sphere, especially among the U.S., Europe, and China.

The third panelist, Mr. Myerson, spoke about the outlook for Asian Mergers & Acquisitions (M&A).  He warned that the U.S. debt bubble has made the U.S. economy “totally unsustainable.”  In order to repair this systemic failure, he identified de-leveraging as a key component. As part of the de-leveraging process, he said, companies in the capital-constrained economy should sell assets.  Myerson predicted that as companies de-leverage, opportunities will arise at attractive prices, and these M&A activities will stimulate the markets and get credit flowing again. 

All three panelists emphasized the need for strong international coordination and political leadership.  While many challenges lay ahead, the panelists remained cautiously optimistic that this crisis will ultimately pass and more opportunities will emerge. 

KEYNOTE 2: Young Chan Nam, Executive Vice President, SK Telecom and Chair of Executive Committee on Corporate Ethics, Federation of Korean Industries.
By: SangJoon Lee, Kennedy School of Government

Speech: “Back to the Basics: Revisiting Asian Values in a New Business Environment”
Mr. Nam opened his speech by discussing the current global financial and economic crisis, emphasizing another side to the technical aspects of the current crisis: corporate ethics and business.  While drawing upon the argument of New York Times columnist Thomas Friedman that the US economy needs not only corporate bailouts but also “ethical bailouts,” Mr. Nam noted that he would focus his speech on the “values dimension” of the new business environment at a time of high risks and vulnerabilities.

Mr. Nam analyzed the fall of Wall Street financial markets as indicative of the fall of business ideals and the deterioration of corporate ethics.  He noted that we need not only regulatory systems and legal frameworks— the systemic dimension— but that ethical dimensions also be brought into place in order to address this crisis.  Reviving healthy values is critical to “sustainable management,” he noted.  While pointing to cases in Singapore, Japan, and South Korea, Mr. Nam noted that these success stories in Asia tell us that we need to revive Asian values such as social harmony and community spirit.

Finally, Mr. Nam concluded that we need “corporate citizenship”— imbued with Asian values —along with corporate social responsibility in order to prepare adequately for a new business environment in which we will be faced with new risks and opportunities.

KEYNOTE 3: Emmanuel P. Maceda, Chairman, Asia Pacific, Bain & Company

By: Justin Liang, Kennedy School of Government

Speech: “Asia and the Credit Crisis”

What are the implications of the current global financial crisis for Asia? Emmanuel Maceda, Chairman of Bain & Company’s Asia-Pacific operations, provided a broad macroeconomic analysis of the credit crisis and its impact on Asia, looking specifically at the case of China and its private sector.

From a macroeconomic perspective, Mr. Maceda suggested, there is both good and bad news. Asia’s massive central bank reserves and high savings rates—up to 30% of earned income in Singapore and China—have enabled some countries to weather the credit crisis better than many Western countries. Trade surpluses and well-funded corporate balance sheets, with strong debt-to-equity ratios, have created a positive buffer for Asia amidst the turmoil. Yet, Asian growth forecasts are nevertheless experiencing a downward shift. The crisis has led to a major slowdown in exports to Europe and the U.S., and China’s growth—linked closely to the global economy—is now slowing. In China, 67,000 companies (mostly small to medium-sized enterprises, or SMEs, in the export business) went bankrupt in the first half of 2008, indicating that China’s economic growth is still cyclical. Mr. Maceda also added that there are “danger zones” in selected markets—including South Korea, Pakistan, and Indonesia—that may negatively affect growth forecasts for the region.

This coming year, several factors are contributing to a more sobering economic outlook with varying degrees of impact. Mr. Maceda noted four: slowing net export growth; falling investment due to real estate market corrections and a decline in manufacturing investments; slowing personal consumption growth; and the roll-out of new multi-pronged policies by the Chinese government.

In China, net export growth is likely to decline from 13% to 9% but the impact on GDP growth will likely be minimal because net exports represent but a small fraction of overall GDP. China is less export dependent than generally perceived, and the actual export share for Asian economies is far less than headline export/GDP ratios suggest. On the other hand, the lack of investor confidence in China’s real estate market and a decline in manufacturing investments are expected to have a major impact on GDP growth. Given weakening exports and lower levels of private capital, manufacturing investment is expected to decline to 0% in 2009.

Slowing personal consumption growth will also have implications for the Chinese and for the Asian economy as a whole. However, despite the worsening environment, retail sales remain strong, and rising incomes and China’s expanding middle class have contributed to increased domestic consumption. As a result, consumption will slow in 2009, but not collapse; the impact, according to Mr. Maceda, will be moderate. Similarly, China’s new three-pronged policy approach to stimulate the economy may have a positive impact. The government’s 586 billion USD fiscal stimulus package, cuts in lending and deposit rates, and sector-specific corporate restructuring will continue to make China the most dynamic economy in Asia despite negative overall growth forecasts.

Overall, the current credit crisis will have a major impact on Asia, but the region will not be as affected as other regions. In the medium-term, investments will continue to flow to Asia’s emerging markets, with the biggest part of the equation being China. The downturn will, however, serve to amplify the corporate turbulence that has been observed across industries in the region and beyond over the past 30 years. While Asian companies are well placed to weather the storm, many questions remain about just how successful the private sector will be.

KEYNOTE 4: Li Shiqin, Head of Financial Institutions of the International Department, Agricultural Bank of China, Ltd. 

This speech was closed to the press.
 

this event took place:

February 14-15, 2009

Cambridge, Massachusetts

Winter 2009