Changing Corporate Asia - What Business Needs to Know

Media Release

7 March 2002

Media release from the Australian Department of Foreign Affairs and Trade

Latest report by the Economic Analytical Unit, Department of Foreign Affairs and Trade. To be launched by the Minister for Foreign Affairs, Alexander Downer, in Sydney, 1 pm, 7 March, 2002.

The Minister for Foreign Affairs, Alexander Downer, will launch Changing Corporate Asia,What Business Needs to Know and speak on change in corporate Asia on 7 March.

The report highlights how the crisis is undermining East Asian economies' relationship-based business models, but rules based models are emerging only slowly to take their place. Emerging economies risk being caught in limbo unless governments act quickly.

The crisis made many major banks and companies insolvent. Such companies are not repaying loans or suppliers, so many regional businesses can no longer rely on relationships to do business. Few foreign or local banks are willing to lend to corporates. Hence, regional investment and growth continue to languish.

The report analyses how major regional economies are responding to this crucial challenge, detailing recent market opening and regulatory reforms in all 11 major East Asian economies and Australia. To help their economies return to robust growth, governments increasingly recognise they must construct a viable rules based business environment. However, with vested interests seeking to shield themselves from corporate restructuring and building competitive pressures, governments are finding they need strong political will to maintain reform momentum.

For briefing and free electronic or express delivered embargoed report copies contact:

Brendan Berne
Director, EAU
Ph: 02 6261 3723
brendan.berne@dfat.gov.au

Dr Frances Perkins
Executive Director, EAU
Ph: 02 6261 2237
frances.perkins@dfat.gov.au

David Lowe
Deputy Director, EAU
Ph: 02 6261 2367
david.lowe@dfat.gov.au

Implications for Australia

  • Australian businesses will be well advised to focus on those regional economies making the fastest progress in moving to a rules based business model as they are likely to be the first to return to robust growth and will offer the fairest and most efficient business environment for foreign traders and investors.
  • Economies implementing stronger securities market regulations and insolvency regimes gradually should protect minority investors and creditors better, reducing risks for Australian portfolio investors and financial institutions, and becoming safer destinations for Asia's own vast savings.
  • Australian accountants, lawyers and other business consultants can access significant opportunities helping East Asian corporates comply with the �regulation revolution' under way across the region.

Key Points

  • Family companies dominate most East Asian economies and frequently a few families own a large share of corporate assets; this often generates poor corporate governance and minority shareholder protection concerns.
  • Hence, since the crisis, most regional governments are strengthening listing, corporate accounting and disclosure rules and insolvency regimes to protect small shareholders and creditors. In many regional economies including Hong Kong, Singapore, Malaysia, the Republic of Korea, Japan and Taiwan, new company reporting, accounting and auditing standards entail company disclosure levels approaching international norms. Eventually these reforms should make regional share markets and banks a safer destination for East Asia's vast savings.
  • Hong Kong and Singapore are market leaders in enforcing corporate law and prudential regulations. However, most middle income and emerging regional economies still lack the capacity to implement bankruptcy and other new commercial laws fairly and efficiently. Lack of institutional infrastructure such as strong courts and well trained and resourced regulators, powerful vested interests and a lack of political will to prosecute non-compliers still often prevent new standards being applied consistently. These issues are most acute in developing regional economies.
  • Despite ongoing problems, many regional regulatory authorities and non-government professional bodies now give high priority to enforcing better corporate governance standards and most are making real, though gradual progress.

Regional Economy Studies

  • Generalisations can only go so far. Hence the second volume of the report examines in detail recent reforms and developments in corporate laws, regulations and market forces impacting on corporate behaviour in 11 major regional economies; Japan, China, the Republic of Korea, Taiwan, Hong Kong, Indonesia, Thailand, Malaysia, Singapore, the Philippines and Vietnam, and in Australia. As would be expected, the most developed economies, Hong Kong, Singapore and more recently Japan, Taiwan, Malaysia and the Republic of Korea are making the most progress in lifting corporate governance standards. China is making good progress from a relatively low corporate regulatory and enforcement base. The Philippines, Thailand, Indonesia and Vietnam also are undertaking considerable regulatory reform, but in these economies implementing these new laws and regulations and changing corporate cultures will be a much longer term task.
  • Most regional economies also are reducing trade, competition and investment barriers, particularly in their financial sectors. This is increasing market discipline on corporates to better protect the interests of minority shareholders, creditors and consumers. However, most regional economies would benefit from further deregulation, privatisation and market opening to reinforce regulators' efforts to boost corporate governance standards.
Last Updated: 19 September 2014