6 Special reportAsian tigers The EconomistDecember 7th 2019
21tor of both the Trans-Pacific Partnership (a trade deal that once
aimed to join America, Japan and ten other Pacific-Rim countries)
and its supposed rival, the Regional Comprehensive Economic
Partnership, which includes China. It is also among the countries
working to broker a compromise between China and America that
will keep the World Trade Organisation functioning.
But the tigers have little ability to dodge a full Sino-American
clash. Hong Kong is most at risk. Its distinctiveness is recognised
in American law, which treats it as a separate customs territory
from the rest of China. That means it is a non-combatant in the
trade war. But some companies appear to be exploiting this, rout-
ing goods through Hong Kong middlemen to lower the tariffs they
face. America might yet tighten its scrutiny of goods from the city.
Problems in Asia can also be home-grown. A political dispute
between South Korea and Japan, rooted in Japan’s occupation of
South Korea in the first half of the 20th century, has morphed into a
21st-century trade squall. Japan has restricted sales to South Korea
of materials vital for making semiconductor chips. The global di-
vision of labour is so finely sliced that it is difficult for South Kore-
an chipmakers to find close substitutes.
The upshot of all the turmoil is that it is getting harder for com-
panies to know where to operate and with whom to trade. At Giant
Ms Tu’s conclusion is that companies need to stick to what they
can control. “We have to focus on efficiency and automation,” she
says. That quest for efficiency is shared across the tigers. Automa-
tion is one way to achieve it. But there are others. 7F
or an operationthat originated in Singapore, it was improb-
ably grim and bloody. Last month Jack and 49 others boarded a
transport aeroplane and parachuted onto an island. Their mission
was simple: kill or be killed. Jack picked up grenades and worked
his way to an abandoned factory. He crouched for safety, thinking
he had escaped detection. He was wrong. After a hail of bullets, si-
lence descended. Jack had once again failed to pass level one.
Welcome to Free Fire, one of this year’s most downloaded fight-
ing games for phones. Its developer is Sea Group, an internet com-
pany founded in Singapore a decade ago, now worth $17bn. As well
as its hit game, the group also has an e-commerce app, Shoppee,
which is far more popular in South-East Asia than Amazon. Its suc-
cess reflects an important shift in the tigers’ economies.
During their boom years, many of their biggest companies were
outgrowths of government policy. South Korea’s chaebol were
showered with cheap credit and tax breaks. Taiwan’s semiconduc-
tor champions were spin-offs from an official research institution.
Hong Kong’s tycoons cultivated close ties with officials and bene-
fited from its land policies. Singapore’s biggest firms were ulti-
mately owned by the state.
Sea represents something else. Its success has few direct links
to government policy. Singapore’s technocrats, the authors of
many detailed economic blueprints, presumably never dreamt of
a multiplayer fighting game that includes such characters as a
beauty queen turned arms dealer. Lee Kuan Yew would have been
unamused. Officials today are grateful.
Industrial policy was a big factor in the tigers’ take-off. Even theInternational Monetary Fund, traditionally a sceptic, published a
lengthy paper this year about the success of their government-led
models. But what works for a developing country does not neces-
sarily help a wealthy one. In the 1970s, the tigers could follow oth-
ers. South Korea’s focus on heavy industry borrowed liberally from
Japan. They could also license advanced technology, as Taiwan did
in its semiconductor sector. And they could poach researchers.Progress won’t drive itself
Now the challenge is different. When officials and entrepreneurs
look ahead, they see only the mists of the future. It might sound
clever to develop national strategies for artificial intelligence or
quantum computing. But how? There is no technology to copy be-
cause it has not been created yet. Genuine innovations are inher-
ently difficult to spot in advance. So the game is more about creat-
ing the right conditions for companies to press ahead and to seize
on breakthroughs when they arrive.
The tigers’ plans these days can sometimes sound like old-
fashioned industrial policies. President Tsai Ing-wen in Taiwan
has her “5+2 Innovative Industries Plan”, eyeing sectors such as
green energy and smart machinery. Singapore has its 23 Industry
Transformation Maps, covering everything from food manufac-
turing to aerospace. South Korea aims to invest 30trn won (more
than $25bn) over five years in eight emerging industries, from arti-
ficial intelligence to autonomous vehicles.
But look a little more closely, and the difference with the
schemes of yesteryear becomes clear. These are not top-down ex-
ercises in planning but rather the outcome of deliberations with
companies and experts. And the point is not to recommend subsi-
dies for this or that sector but rather to work out what building
blocks are needed. “The process of developing the plan was just as
important as the final product,” says Gabriel Lim, permanent sec-
retary of Singapore’s Ministry of Trade and Industry.
Some of the elements are obvious: good infrastructure, from
ports to internet; openness to trade; highly educated workforces;
and high spending on research and development (see chart). But
the tigers also have innovative ways to promote innovation.
Taiwan has one of the world’s most robust frameworks to en-
courage lending to small- and medium-sized enterprises (smes),
the kinds of firms that have ideas but few resources. It combines a
centralised information-sharing system about company perfor-
mance with a menu of credit guarantees, giving banks more confi-
dence. “When I explain our system to bankers in other countries,
you can see them salivate,” says Lee Chang-Ken, president of Ca-
thay Financial Holdings, Taiwan’s largest financial group. Loans to
smes now account for 64% of bank loans to private enterprises inA sea change
Governments are steering their economies with a lighter touchInnovationLionisedSources: OECD; United NationsResearch & development spending , % of GDP00.51.01.52.02.53.03.51998 2000 2005 10 15 17JapanUnited StatesFour Asian TigersGermanyChina