Investment under threat

Shock waves from the Far East financial crisis could ripple out to British factories

Asian investment in Britain is set to slow sharply, following the collapse of Japan’s Yamaichi Securities and the International Monetary Fund’s intervention in South Korea.

‘Common sense suggests that the big Korean and Japanese players will freeze expenditure to secure balance sheets while they wait to see how things turn out,’ said Dr Edward Kuska, a senior lecturer at the London School of Economics.

Japanese firms are sensitive to the banking sector’s difficulties because they have used loans rather than equity to fund expansion. A second factor is the ‘keiretsu’ system in which conglomerates ally to develop markets with a bank as a financial partner.

Kuska said companies were finding things difficult because ‘we have never seen this type of slump before’.

He said: ‘Traditional economics tells you how to deal with crises that occur quickly and across the board. However in Japan there is the threat of something more like a gradual unravelling.’

Even the extent of the crisis is open to debate, with estimates of the amount needed to stabilise Japan’s economy varying between Y15,000bn (£70bn) and Y3,000bn.

There are some hopeful signs for Asian firms’ more established UK subsidiaries. Honda and Toyota said this week that expansion plans were unchanged.

The age of the plants – Swindon opened in 1989, Burnaston in 1992 – means that they have paid back start-up costs and can fund expansion from UK turnover. ‘Today, we are 90% self-financing,’ a Honda spokesman said this week.

More concern surrounds the newer UK operations owned or being developed by Korean firms, such as Samsung’s massive £1.7bn electronics plant in Newport, Gwent.

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