1. Asian economies and construction markets
(1) Macroeconomic conditions
The Asian economy had been steadily recovering in line with its increased
export competitiveness and a strong American economy until 2000, but that
growth stagnated once the American economy began to slow down in 2001.
Since 2002, the economy has generally been recovering as domestic demand
driven by private consumption has been progressing steadily and exports
have recovered. However, there is still a certain over-reliance across
Asia on trading with advanced countries - including America - and changes
in the American market may pose significant risks for the future economic
growth of Asia as well.
Table 1 Trends and outlook of macroeconomy by
country
| Real GDP growth rate | |||||
| 1998 | 1999 | 2000 | 2001 | 2002 | |
| China | 7.8 | 7.1 | 8.0 | 7.3 | 7.0 |
| China, Hong Kong | -5.0 | 3.4 | 10.2 | 0.6 | 1.5 |
| Taiwan | 4.6 | 5.4 | 5.9 | -2.2 | 2.3 |
| India | 5.0 | 9.0 | 4.4 | 5.5 | 6.5 |
| Indonesia | -13.1 | 0.8 | 4.9 | 3.3 | 3.5 |
| Japan | -0.8 | 1.9 | 1.7 | -1.3 | 0.0 |
| Korea | -6.7 | 10.9 | 9.3 | 3.0 | 5.0 |
| Malaysia | -7.4 | 6.1 | 8.3 | 0.4 | 3.0 |
| Phillipines | -0.6 | 3.4 | 4.4 | 3.2 | 4.0 |
| Singapore | -0.1 | 6.9 | 10.3 | -2.0 | 3.2 |
| Sri Lanka | 4.7 | 4.3 | 6.0 | -1.4 | - |
| Vietnam | 5.8 | 4.8 | 5.5 | - | - |
| Thailand | -10.5 | 4.4 | 4.6 | 1.8 | 2.7 |
| Country | GDP in 2001（current price, US$ 100 million） | Construction Investment（US$ 100 million） | Construction GDP Share（%） | Population (thousand) | Construction Investment per Capita（US$） |
| China | 11,590 | 2,260 | 19.5 | 1,253,595 | 180 |
| China, Hong Kong | 1,621 | 147 | 9.1 | 6,760 | 2,175 |
| Taiwan | 2,812 | 327 | 11.6 | 22,130 | 1,478 |
| India | 4,458 | 622 | 14.0 | 1,037,000 | 60 |
| Indonesia | 1,453 | 126 | 8.7 | 204,400 | 62 |
| Japan | 41,208 | 4,970 | 12.1 | 127,120 | 3,910 |
| Korea | 4,110 | 673 | 16.4 | 47,342 | 1,422 |
| Malaysia | 880 | 104 | 11.8 | 23,300 | 446 |
| Phillipines | 714 | 63 | 8.8 | 78,420 | 80 |
| Singapore | 856 | 83 | 9.7 | 3,319 | 2,501 |
| Sri Lanka | 157 | 16 | 10.2 | 18,726 | 85 |
| Vietnam | 329 | 40 | 12.2 | 76,900 | 52 |
| Thailand | 1,148 | 161 | 14.0 | 60,246 | 267 |
| Total | 71,336 | 9,592 | 13.4 | 2,959,261 | 324 |
| except Japan | 30,128 | 4,622 | 15.3 | 2,832,141 | 163 |
Source: Data for the 5th ~ 8th Asia Construct Conferences (November 2002), ENR data (December 2000)
Notes)
1. For the construction investment values, the most recent data is adopted; being 2000 for Hong Kong, Malaysia, Philippine, Taiwan and Thailand; 1999 for China; and 1998 for Indonesia and Vietnam.
For Malaysia, the value of construction orders placed is adopted as an alternative to the construction investment value.
2. County reports
AustraliaHong Kong
Following the financial crisis in 1997, the whole of the Asian economy
went into decline, and after the terrorist acts of September 2001, the
Hong Kong economy has been hard hit. Currently, the unemployment rate is
over 7%. Characteristics of the Hong Kong economy are the mismatch between
employment and the increase of demand to services with highly added. The
highest deflation was recorded over the last four years, and the consumer
price index has also been falling.
In terms of the expenditure of the construction industry in Asian countries,
it was ranked fourth after Japan, Korea, and Singapore in 1999. The share
of construction-related expenditure out of the GDP in 2000 is about 5.3%.
In terms of breakdown for the construction industry, 63% involves construction,
22% for civil engineering, and 15% for others.
Construction companies in Hong Kong are mainly involved in housing construction.
Almost all infrastructural development and large-scale projects are carried
out by foreign construction companies (including some based in mainland
China). Foreign and domestic companies are treated equally in terms of
business involvement, and foreign companies are involved in Hong Kong government
projects as well.
While the GDP growth rate has struggled to grow and unemployment has been climbing as just described, the construction industry is currently suffering badly. Bid prices have fallen significantly and at the same time, competition has become tougher. Policies to stimulate the market are currently under consideration, but there are few bright factors for housing, such as land and house prices, and a reduction in the number of houses supplied, and no prospect of increasing the status for real estate trading either. The government focuses on infrastructural development projects in its 2002/3 budget. Currently, about $400 billion over 1,600 projects is planned, with completion due within the next nine years. Hong Kong is now closely tied to mainland China for such projects and its economic growth. It is thought that Hong Kong will be involved in the infrastructural development of mainland China, as evidenced by a large-scale bridge and railway project centered on Guangdong.
Japan
After rebounding from negative growth in fiscal 1998 to achieve positive real growth of 1.4% in fiscal 1999 and 1.7% in fiscal 2000, it appeared that the Japanese economy was on the path to recovery. In fiscal 2001, however, negative growth, - 1.7%, was recorded for the first time in three years. In fiscal 2002, although projections of recovery may be possible in some sectors, the overall economic situation seems to be remaining fairly flat.
The real gross domestic product (GDP) for the January to March period of 2002 was 1.4% over the previous period. Exports have increased because of the recovery of the US and Asian economies from the IT recession and the terrorist attacks of September 11, 2001, and individual consumption, which accounts for about 60% of GDP, increased for the second consecutive quarter, rising 1.6% over the previous period. Against the backdrop of a declining desire to invest among businesses, however, capital investment fell by 3.2% from the previous period, and residential investment fell by 2.3%, the second consecutive quarter of decline for both types of investment.
In fiscal 2001, Japan's GDP was \497.2 trillion in nominal terms, causing the real economic growth rate to fall to - 1.7%, the first negative growth rate in three years and the largest negative growth rate since fiscal 1980. This is a result of the downward pressure on private demand caused by the country's bad debt problems, excessive debt, tight employment conditions, and uncertainty over the sustainability of the nation's fiscal and social security systems.
Due to active fiscal investment and large tax reductions implemented as
part of the government's economic policy, however, and to reduced tax collections
caused by the recession, the national government's outstanding debt as
of the end of fiscal 2001 was \607.3 trillion, exceeding the past record
high of \600 trillion. This figure far exceeds Japan's GDP (nominal \497
trillion in fiscal 2001). Over the mid- to long-term, this enormous amount
of outstanding debt is expected to cause economic distortions, thus making
the task of fiscal policy reform, along with economic recovery, a major
challenge for the Japanese economy.
Construction investment in Japan has continued to decline since fiscal
1997. It is estimated to hit \56.3 trillion for fiscal 2002, having fallen
all the way to only 70% of its 1992 peak. It is expected to be quite some
time before economic recovery begins in earnest and before that movement
is then reflected in the private construction market. With a decline in
public works projects, construction investment will also inevitably decline
over the next five years. Even over the mid- to long term, negative factors
such as fiscal stringency and the aging and shrinking of the population
will make it impossible to avoid further contraction.
Though private construction investment in the domestic economy has been
sluggish since the collapse of the bubble economy, public construction
investment has remained at fairly high levels. This is because public works
projects were actively promoted in successive economic policies enacted
to achieve economic recovery. Since public works projects thus propped
up construction investment, which had shrunk as a result of major decreases
in private construction, a rapid decline in overall construction investment
was averted.
However, as a result of ongoing dynamic fiscal investment over several years in an environment where the economic slowdown had produced a lack of financial resources, fiscal conditions drastically worsened. Local governments especially found themselves in a difficult spot, and though the national government had been promoting investment in public works projects to help improve the economic climate, it eventually became unable to follow through on these projects. Actually, the number of independent local projects implemented by local governments with their own funds continued to decrease over several years, and public projects funded by the national government reached their limit. It has become difficult to rely on national-government finances to sustain construction investment.
In fiscal 2001, there were serious declines in all three sectors of construction
investment. Government construction investment fell for the third consecutive
year by a nominal 9.5%, and private residential investment likewise fell
by 8.8%, due to a worsening of the employment and income situations. Private
non-residential construction investment also fell, dropping 12.2% due to
the deteriorating investment environment. Overall construction investment
fell by a nominal 9.2% from the previous fiscal year.
In fiscal 2002, overall construction investment fell by a nominal 6.8% over the previous year, sinking under the \60 trillion mark for the first time in 16 years to settle at \56.3 trillion. In government construction investment, there was a 10.7% decline in public works project expenditures in the initial budget, and without a doubt there was a noticeably large decline in independent local projects. Government construction investment overall fell by 9.4% (nominal terms), about the same level of decline as last year. Private residential investments were supported by tax reductions on new home loans, but because of the time it takes to change the consumer mentality, they still fell for the third consecutive year, by 6.6% (nominal terms). There is little good to add in the areas of general building and civil engineering, as private non-residential construction investment continued to decline, falling 2.0%.
Forecasts indicate that in fiscal 2003, overall construction investment will fall by a nominal 3.9% from the previous fiscal year, hitting \54.2 trillion. Government construction investment will fall by a nominal 6.9% from the previous year since, with a stable budget and no additional measures in the revised budget, there is nothing to carry forward from the revised budget. Private residential investment is expected to bottom out in some sectors, such as owned houses and condominiums, but this will not amount to a full-blown recovery, as investment will continue to decline, falling 1.4%. The declining trend in private non-residential construction investment will also continue, as forecasts indicate that it will fall by 1.3%.
Korea
Since 1997, the nominal Korean GDP has been gradually increasing, with GDP in 2001 about US$ 422.2 billion, so after the financial crisis in 1997, it has rapidly increased from US$ 317.7 billion. This is the result of efforts made through structural changes. In 1998, real GDP growth stood at -6.7%. By contrast, the growth rate was 10.9% in 1999, 9.3% in 2000, and 3.0% in 2001. An economic growth rate of 6.3% is expected for 2002.
The status of the construction market has totally changed since 1998. The
increase in construction investment (in real terms) was 2.3% in 1997. Since
1989, growth had been recorded for eight years, but stopped after the Asian
currency crisis in 1998, when -10.23% was recorded. It recovered slightly
(0.9%) in 1999, but this was mainly because the government adopted a recovery
action plan. In 2000, it fell again (-4.1%), but by 2001, it had recovered
to 5.4%, and 6.7% growth is seen in the first half of 2002.
The construction industry in Korea is a traditional industry in the same
way as in other Asian countries, but it is currently in a tough state.
Since the economic crisis in 1997, the economy has recovered slightly,
but the status in 2005 or 2010 is impossible to forecast, and it cannot
currently be imagined that the rate of investment in the construction industry
will increase significantly in the near future.
Singapore
The real economic growth rate in Singapore in 1990 was about 10%, but since the Asian currency crisis in 1997, it has declined, falling to nearly zero growth in 1998. In order to recover from such status, the government implemented cost reductions for public organizations and increased corporate taxes. As a result, the Singaporean economy slowly shifted into positive growth towards 2000. However, in 2001, the economy contracted by 2% due to the effects of the September 11 terrorism in America. It had been forecast that the economic growth rate for 2002 would be 3% ~ 4%, but that may have to be reduced by about 2% due to the terrorism in Bali just before this conference.
The status of the construction industry in Singapore had been quite good
from the early Nineties to 1995, and high growth was recorded, but the
size of the construction industry was reduced due to an economic slump
from 1996 to 1999. From 1999 to 2000, signs of new recovery were seen in
line with the economic recovery. However, since 2001, the economy has been
degraded and stagnation has restarted, resulting in a significant decrease
in demand for the construction industry.
When the contribution ratio of the construction industry out of the GDP
over the last 20 years is analyzed, in the early Eighties when the volume
of public projects, such as involving infrastructural development, was
enormous, being consistently over 30% of GDP, but as a result of the reduction
in construction demand across the whole of Southeast Asia from 1991 to
1995, its proportion of the GDP fell to around 7% in that period. Thereafter,
it gradually recovered, and this tendency continued until 1998 following
the financial crisis in Asia. Since then, it has been broadly flat or declining.
It is estimated that this trend will continue for another five or ten years,
and no optimism is warranted for the construction market in the near future.
Private construction demand for 2001 was 6.2 billion Singapore dollars, about half of which is for housing construction. Other industrial buildings account for 35%. The public sector represented 7.4 billion Singapore dollars, out of which housing construction fell significantly to about 13% due to excess housing construction to date, so the entire construction industry has suffered substantial damage. In 2002, the private sector fell to 5.2 billion Singapore dollars, but the government sector increased to 9.4 billion Singapore dollars based on an increase in the number of civil engineering infrastructural projects, so it is expected that overall demand will increase. There are few construction plans for new public housing, but the Singaporean government tries to upgrade existing housing by refurbishing it to guarantee that real-estate values are not degraded for its citizens.
Sri Lanka
The real economic growth rate for 2001 was -1.4% which is the worst economic
growth rate since the founding of the nation of Sri Lanka in 1948. This
is because the global economic depression caused export stagnation in the
manufacturing industry in Sri Lanka, a sudden rise in food prices in Sri
Lanka due to an extended drought since 2000 in the country, and the lack
of domestic political stability, as evidenced by civil strife and terrorism.
It is thought that the economy will recover slightly due to an increase
in investment and employment opportunities and a fall in the inflation
rate in 2002.
The rate of increase in production output in the construction industry
for fiscal 2001 was 2.5%, while its share of the GDP was 7.26%. Even though
the growth rate for the construction sector has fallen, it is the only
sector to achieve positive growth out of all their industries. However,
it is thought that awareness of the importance of the construction industry
and development work in the country has not increased much. Areas requiring
future improvement can be described as the small business volume and that
foreign construction companies cannot operate in the country.
Possible measures for future development of the construction industry are as follows:
1) Official adoption and promotion of domestic development plan
2) Establishment of a construction industry authority and agency
3) Adoption of standardized construction-related documents
4) Adoption of appropriate financial mechanisms to avoid delays in payment to service providers
5) Establishment of material storage to cope with the urgent demand for construction materials
6) Establishment of a research and development fund, and construction of technology database
7) Implementation of regulations for foreign construction companies and consultants
8) Regular communication on contract procedures between stakeholders
9) Establishment of accumulated reserve fund construction assurance and aid for banks and construction companies
10) Training workers in the construction industry and revision of their salary conditions
