Malaysia Says No To Japan

Malaysia, Japan's closest friend in Southeast Asia, is furious with the economic giant. Just when Japan is trying to build a new economic sphere in Asia, Malaysian complaints are raising new questions about the entire endeavor. U.S. companies, policymakers in Washington, and other Asian nations would be wise to pay heed to what is developing in Kuala Lumpur.

Malaysia is simply fed up with Japanese economic behavior. It is grateful for all the investment that Sony, Matsushita, Hitachi, and others have pumped in to generate 8% growth over the past seven years. But the country is finding it extremely difficult to move beyond being a cheap-labor assembler of made-in-Japan components for Japanese companies. It finds itself locked inside a yen-dominated economic hegemony.

In reaction, Prime Minister Mahathir Mohamed, a longtime critic of the U.S., has taken to blasting Japan. He recently complained that Japan was not transferring technology to Malaysian manufacturing plants. The high-value-added parts of Malaysia's car, the Proton, are still made in Japan. Burned by their experience in transferring technology to Korean companies in the 1980s, only to see them come back as rivals in the '90s, the Japanese are holding back in Malaysia. By contrast, Intel Corp. does much of its chip design and development work in-country, using local engineers.

Malaysia is also angry about the refusal of Japanese companies to hire local managers. Both Matsushita Electric Industrial Co. and Intel have been in Malaysia for 22 years. Matsushita doesn't have a single Malaysian in a top position and says the Malaysians are too impatient to take control. Intel's operation and those of other American companies are completely run by Malaysians.

Finally, Malaysia has lost patience with Japan's closed markets. Mahathir complains that only exports by Japanese companies in Malaysia get into Japan. Malaysian-owned companies producing their own manufactured products can't break in. Even the much-loved Malaysian Proton, built mostly with Mitsubishi Motors Corp. parts, isn't sold in Japan.

Malaysia is caught in a financial trap. It has to pay for its yen-denominated imports of Japanese parts and its $4 billion in yen-denominated debt with dollars earned by exports to the U.S. But the yen keeps appreciating while the dollar keeps depreciating, leaving Malaysia constantly falling behind. When Mahathir personally asked Japan for relief from its yen debt, Tokyo turned him down cold. Thailand, Indonesia, China, and the Philippines, all facing the same conundrum, were also refused. Now, Malaysia is refusing to borrow any more yen and is actively looking for dollar-denominated imports to replace those from Japan. In fact, it has already told Mitsubishi that the next-generation Proton will be based on France's Citroen AX.

Malaysia's impatience with Japanese economic behavior is taking a serious political toll as well. It has been trying to get Japan to take the lead in creating a new economic organization to replace the rival Asia-Pacific Economic Cooperation forum (APEC). Called the East Asian Economic Caucus, it would exclude the U.S., New Zealand, and Australia (it is dubbed "the caucus without caucasians" throughout the region). So far, Tokyo has demurred, leaving Malaysia fuming that Japan is abnegating its leadership responsibilities. A recent trip to Kuala Lumpur by the keidanren, led by Toyota Chairman Shoichiro Toyoda, was virtually boycotted by the Malaysian government.

Twelve years ago, Malaysia, still smarting from British colonialism, launched a Look East policy that favored Japan. It worked very well for Malaysia, as it did for much of Asia, for about a decade. It doesn't today. With U.S. and European companies far more willing to share technology, employ local managers, and, most important, open their domestic markets to Malaysian goods, it may well be time for Kuala Lumpur to Look West once again. It is certainly time for Western companies and governments to start making offers the Malaysians and others in Asia will find difficult to refuse.

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