Desperately looking to shore up their flagging economies, Asian governments have been opening key industries to foreign participation.
But while U.S. investors are having an easier time buying a stake in Asia, there remain stark differences in accounting standards, corporate philosophy and political practices that pose risks for Western investors.
"Liberalization is coming in fits and starts from country to country across Asia. It has opened a lot of doors," said Greg Fager, director of the Asia Department at the Institute of International Finance in Washington. "But at the end of the day I worry that none of these countries have taken the next step. They still haven't come to grips with (public disclosure) and investor rights."
For years Asian countries had funded their growth by borrowing billions of dollars on the international bond market, mostly from Western financial institutions. But after the financial crisis of 1997 and 1998, during which those bonds went into default, the debt market became largely closed to Asian corporations, and remains so today.
As a result, Asian governments are now forced to seek direct investment from foreign investors.
Major U.S. and European investment houses have been scouring Asia for the past two years in search of bankrupt financial institutions, foreclosed real estate, nonperforming loan portfolios and other distressed assets at fire-sale prices. They also have been pouring money into Asian stock markets that have raised the limit on foreign ownership of public companies.
"Deregulation has not just made it easier, it has made it possible for U.S. investors to buy Asian assets," said James Zukin, partner at Houlihan Lokey Howard & Zukin, a Century City-based investment bank that has handled the auction of billions of dollars worth of nonperforming Korean loans. Most of the bidders were Western financial institutions.
"A couple of years ago we wouldn't even have attempted to do it," said Zukin.
South Korea has taken some of the boldest steps. Foreigners can now have 100 percent ownership of property, and up to 49 percent of many public companies. The government also has been auctioning off its stake in bankrupt Korean companies to both domestic and foreign bidders.
"I don't see anything comparable in any other country," said Fager. "They have bitten the bullet on restructuring faster than anywhere else in the world."
Other changes in Asian business practices are more fundamental. English has become the language of business throughout Asia.
Board meetings at Korea Exchange Bank, which until a few years ago was wholly owned by the Korean government but is now partly owned by Commerzbank AG of Germany, conducts its board meetings in English.
Nonetheless, there are some who believe the opening of markets and other forms of liberalization are not happening quickly enough.
"The privatization process has been done in a way to discourage foreign investment," said Marcus Noland, senior fellow at the Institute for International Economics in Washington. "The Korean government solicits bids. But if it doesn't like the bids, it calls off the auction and organizes a second round."
He noted that when Ford Motor Co. looked to be the most likely buyer of Korean carmaker Kia Motors, the government delayed the process until Ford dropped out of the bidding.
Meanwhile, Japan is being praised for opening up such key sectors as financial services and telecommunications to direct foreign investment.
Liberalization in the telecommunications market has led to a slew of joint-venture deals with foreign companies, including Global Crossing Ltd., whose top managers operate out of Beverly Hills.
Western banks and brokerage houses also have been forging joint ventures with Japanese companies at a record pace. But while much improved, the pace of Japanese deal making remains far slower than that of other industrialized nations.
"At this point, Japan is more open to U.S. practices than at any time since World War II," said James Rosenwald III, president of Rosenwald Capital Management Inc. in Redondo Beach, who has been investing in Japan for more than 30 years. "One reason you have seen so much deflation in Japan is that the older system is breaking down. It may not be at lightning speed, but nothing happens in Japan at lightning speed."
Indeed, economic restructuring only took a serious turn last year, more than eight years into Japan's economic downturn. Why the delay? Economists point out that Japan remains among the world's richest nations, with a higher per-capita income than the United States. And while the country has been in a recession for much of the '90s, its unemployment rate still stands at just over 4 percent.
And while the government might change the laws, changing the mindset of the local business community is more difficult.
A recent article in the English-language Korea Herald newspaper quoted Korean economists complaining that foreign investment could hamper the rebuilding of the Korean economy.
As an example, they pointed to foreign investors opposition to plans for profitable Samsung Electronics to assume debt from money-losing Samsung Motors. The fact that both companies have separately traded stock and the transfer of debt would hurt Samsung Electronic's share price were less important that the overall health of the economy, the economists said.
There remains, in fact, a perception among foreign investors that they are still at a major disadvantage when it comes to competing against Japanese firms on their own turf.
"I'd rather compete in Singapore, where there is a level playing field," said Noel Watson, chief executive of Jacobs Engineering Group in Pasadena.
For that reason, Watson said he is more optimistic about the long-term potential of Jacobs' recently established operations in Singapore, which will serve Southeast Asia, than he is about the joint venture Jacobs has with Kajima Corp. in Japan.
"The Southeast Asian market is wide open," said Watson. "And (Singapore) has been working hard to get us there (by providing tax credits and other economic incentives)."
Southeast Asia may be wide open, but the region remains volatile. Gregory Karnes, partner in charge of the Pacific Rim Group at L.A.-based law firm Cox, Castle & Nicholson LLP, said that the greatest hindrance to foreign investment in most of Asia remains the valuation of assets.
Whether it is real estate or companies, there are often vast differences of opinion between what Asian sellers and foreign buyers believe an asset is worth.
"I wouldn't put Asian valuation practices on a pillar," he said.
Foreclosure rules also are vague. Until laws were revised earlier this year, the foreclosure process in Thailand could take up to seven years. In countries such as Indonesia and the Philippines, accounting practices are even more obscure.
And while many Asian countries want investment, they insist that foreigners play by their rules.
The Philippine government, for example, has opened its doors to foreign companies wishing to set up manufacturing operations there, as long as the goods produced are exported elsewhere. Any foreign manufacturer attempting to sell directly into the Philippine market will likely be frustrated by ambiguous business laws and close ties between local business leaders and politicians.
China, meanwhile, has shown reluctance to dismantle its vast network of unprofitable state-controlled enterprises out of fear of causing social unrest. The end result has been that economic growth in that nation has hit a roadblock, and direct foreign investment in China is declining after years of growth.
The ultimate fate of Asian countries will most likely be determined by the pace and extent of their liberalization efforts. Those liberalizing their economies quickly and extensively will see the greatest amount of foreign investment, and in time, will enjoy the greatest economic growth.
"The countries that do not liberalize will get left behind," said Fager.
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