BY AMY SENNETT
Amidst a rough economic climate, students from Harvard Business School, Harvard Law School, and the Kennedy School of Government hosted this year’s Harvard Asia Business Conference, “Asia in a Whole New World” on February 14-15. The global economic crisis and the rising specter of economic nationalism weighed on the minds of participants, but several speakers suggested that while Asia has not been isolated from the economic downturn, the long-term outlook for the continent remains positive.
At Saturday morning’s executive plenary session, Takatoshi Kato, Deputy Managing Director of the International Monetary Fund, said that while just a few months ago many Asian countries were concerned about overheating their economies, a dramatic reduction in investor exposure in Asia, resulting in tighter credit flows and more volatile financial markets, caught many off guard. As export demand in the West collapsed, so did Asian industrial production. Kato offered a grim outlook for 2009, predicting the lowest global growth rate since World War II.
Calling the current financial crisis a “watershed event,” Jeffrey Shafer, Vice Chairman of Global Banking at Citigroup, offered a remade picture of the post-crisis world. He envisioned more government micromanagement of financial institutions, less leverage, strong economic nationalism, and a more questioning public. He also suggested that the G20 would push the G7 into the shadows while the U.S., China and the EU would be the key group for coordination on economic policy. Shafer said that Asian leaders would attempt to reshape their economies to be less dependent on foreign export demand, but also warned that unless new macro financial stability instruments were created, the world would see a replay of this crisis again in twenty years.
The panel’s final speaker, Toby Myerson, a partner at Paul, Weiss and co-head of the firm’s M&A group, suggested that bargain assets will be up for sale around the world as companies seek to deleverage. He said that inbound merger activity had held up much better in Asia than in Europe or the U.S., and he expects an increase in outbound Asian deals, particularly as Asian firms see opportunities to form strategic alliances with target companies. Despite the pessimism expressed by fellow panelists on the Asian economy in the short term, Myerson urged the audience to look for medium and long term opportunities, concluding by saying, “Put me down as an optimist.”
The executive plenary was followed by two days of informational panels and keynote speakers, including four organized by the Asia Law Society.
HLS Visiting Professor Eric Talley moderated the first panel on mergers and acquisitions, which focused primarily on outbound China deals. Howard Chao, partner in charge of O’Melveny & Myers Asia practice, said that although Chinese acquirers were at an advantage over potential U.S. buyers because of their larger pools of available capital, he felt that the Chinese campaign to “go global” by acquiring overseas investments, particularly in natural resources, had soured thanks to the losses from some initial investments. He believes that the Chinese, along with the rest of global investors, are still waiting for the market to bottom. Chao added that Chinese investors had been active in other areas of the world such as Africa, but that the U.S. market remained the hardest to crack, and he suggested that joint ventures were a possible alternative.
Mark Plotkin, a partner at Covington & Burling who manages his firm’s practice before the Committee on Foreign Investment in the United States (CFIUS), agreed that joint ventures in the U.S. were smart move. Although U.S. regulators might be slightly more willing to overlook national security interests in light of the cash strapped domestic economy, Plotkin said that sub control deals were more likely to shore up talent problems or weak spots in a portfolio without political headaches.
A second panel examined the rising influence of sovereign wealth funds (SWF), asking how substantial losses resulting from financial institution investment by SWFs, such as Singaporean Temasek’s investment in Merrill Lynch and the China Investment Corporation’s stake in Morgan Stanley, will affect the future behavior of SWFs.
Robert Chu, managing partner in Sullivan & Cromwell’s Beijing office, highlighted several “fear factors,” such as national security interests, worries about new mercantilism, and beliefs that government should not own large corporations in the free market, which have increased concerns around SWF investments. In the U.S., acquisitions by foreign government-controlled entities automatically trigger a heightened review process by CFIUS, putting SWFs at a disadvantage in a competitive bidding situation. Panelists suggested that global liquidity problems may lead SWFs to focus their investments on their domestic markets.
A third panel, regarding the role of arbitration in Asia, was moderated by Latham & Watkins associate Dan Tan, who co-taught an HLS course on international commercial arbitration in the January term. Tan suggested that arbitration was well suited for the cultural norms of the region because it can be less contentious, although it is not cheaper or faster than litigation.
Anne Marie Whitesell, former Secretary General of the International Chamber of Commerce’s International Court of Arbitration, highlighted the growing role of arbitration in Asia, particularly in Singapore, Hong Kong and Seoul. Whitesell noted that many Asian companies favor arbitration because they have fears about local bias and their lack of familiarity with foreign courts, and arbitration gives parties greater control over the resolution of their disputes. However, she also emphasized the need to develop more comprehensive arbitration procedures in many Asian countries and the need to improve the level of knowledge of international arbitrators in the region, so that there is a larger pool of experienced arbitrators with local cultural knowledge.