Economic growth has declined steadily since 1992. The slowdown has highlighted worsening structural problems, including growing losses by state-owned enterprises and extensive nonperforming loans in the commercial banking system, that are comparable in some respects to those experienced by several Asian countries that underwent crises in 1997. If these elements are not in place, OECD says, the virtuous circle could easily be replaced by a vicious circle. A deteriorating world economy could do just that. Both China's economic performance and the profitability of its enterprises are linked to some extent to the stability of the world economy and to continued demand for Chinese goods.
Strains are also evident in South Korea, Asia's third largest economy after Japan and China.
Added to uncertainty about the global economy, South Korea has failed to implement many of the reforms it was apparently going to embark on in late 1997. Business groups, known as chaebols, are still heavily indebted. The business environment having turned unattractive has caused foreign firms that had shown interest in investing in South Korea to now turn back. A plan by Ford Motor Co., for instance, to invest in Daewoo Motor fell apart in October. The lack of foreign investor interest is adding to the country's woes.