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Wednesday, 28 January, 1998, 11:44 GMT
Europe: Stocks hit
If stock markets continue to slide, economists say jobs could be at risk in a number of European countries. Economic specialist Robert Shortt considers the possible effects in the UK

The British and European economies have, up to now, seemed to suffer more on paper than in reality as successive waves of Asian financial angst have buffeted stock markets, toppling share prices from their dizzy heights -- before subsequently recovering upwards.

But the fear is that the unravelling crisis may yet bite deeper into global prosperity -- not least in the United Kingdom.

Asian Investment

Japan accounts for approximately 3.81% of foreign direct investment in the UK, a commitment worth some 22bn to date. According to the Invest in Britain Bureau, almost 6,000 jobs have been created since 1995 by Japanese companies in 27 different investment projects across a range of industries. Japanese investment is also significant in several European economies.

The pace of this investment could well slow but the overall effect on the overseas subsidiaries of Japanese corporations should not be exaggerated. Take two of the flagship Japanese enterprises in Britain: Toyota and Nissan. Both have large plants in Derbyshire and Sunderland.

Both plants are planning to bring new models onto their production lines over the next two years. Toyota have plans to increase their workforce to 3,000 as part of an expansion announced last year and Nissan plan to increase their workforce of over 4,000 by 800 in 1999.

Their parent companies' results give further indication of how Japan's export sector is taking advantage of a weaker yen to boost overseas sales. Nissan announced earlier this month that exports had increased year on year by 26.3%, leading them to project a net profit of Y55bn in 1998.

Toyota's exports have also increased but their overseas production declined somewhat, mainly due to their decision to leave the Thai market.

Korean firms in deeper water

Korean industry is dominated by the chaebol, large often family-run business empires, which have in the past benefited from government directed investment assistance. This dependence on debt financing has left some of these conglomerates with debts worth more than 400% of capital and some banks with bad debts estimated to be about 15%.

This might have been sustainable whilst GDP was still growing but with the recent currency collapse and the austerity measures which will accompany any IMF rescue package this legacy of debt may have serious effects on Korean companies at home and abroad.

Already this year Hanbo Steel collapsed with debts of $6bn. The troubled Kia Group had to be rescued by the Korean government whilst in Britain there have been reports that the planned investment by the Hyundai Group in Scotland may have to be reviewed.

Korean companies are committed to an investment of some 4.4bn in 16 different projects around the UK. These investments are expected to produce almost 10,000 new jobs. The success of these projects may now increasingly depend on the domestic Korean economy's recovery from its present crisis.

Financial fallout

The wider fear in Europe is that in response to problems at home, Japanese financial institutions might withdraw their substantial holdings of overseas' securities and bonds. This could trigger a fall in the bond and stock markets of both London and Wall Street with all the ensuing effects on investors and pension fund holders.

It is too early to consider if this alarming situation is really a credible possibility. Everything hinges on the measures the government will take and how well healthy financial institutions cope with the effects of any future collapses in the market. But if the problems of today are not confronted, next year's planned Big Bang series of financial reforms and market deregulation may well take place in an economy which has already exploded.

Links to more Asian economic woes stories are at the foot of the page.

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