1

Growth, Industrialization and the Role of Foreign Capital: Asian Colonies, 1900-42
Paper prepared for the XVIIth WEHC Panel: S20015
Kyoto, August, 2015

Anne Booth, SOAS, University of London

Abstract: The paper compares growth and structural change in the main Asian colonies in the
first four decades of the twentieth centuries, and investigates the extent to which different
patterns of investment might have affected growth outcomes. A typology for analyzing
investment is put forward, and an attempt is made to quantify the reliance on different types of
investment (government and private, foreign and domestic) across colonies. The paper argues
that, by the 1930s, a divide had emerged between those colonies where the private sector
dominated as a source of investment funds, and those where the public sector dominated. The
paper explores the policies which constrained private sector investment across colonial Asia
and concludes that governments in Asia prior to 1940 were less open in their trade and
investment policies than they themselves claimed. Not only did they often neglect investment
opportunities in infrastructure and education but they also adopted monetary and exchange
rate policies which deterred private sector investment.

Economic Growth in Colonial Asia: 1900-40

Estimates of GDP growth across Asia are now available for most colonies, and for the
independent countries of Japan and Thailand between 1900 and 1941. In per capita terms,
growth was positive between 1900 and 1929 in most parts of Asia, although slower in British
India (undivided India, including the present states of Pakistan and Bangladesh) than in either
Southeast Asia or in Japan, Taiwan, Korea (after 1911) and Manchuria (after 1924). Over the
years from 1913 to 1938/40, growth in Korea and Taiwan was higher than in any other
economy, although Korean growth until 1929 was no faster than in the Philippines, and not
much different from Burma or Indonesia (Table 1). After 1929, there was a more obvious
divergence between Japan itself, together with Taiwan, Korea and Manchuria compared with
other parts of Asia. All the European colonies in Asia, and the Philippines, experienced a fall
in per capita GDP between 1929 and 1934. The fall was especially sharp in Indonesia where
the growth in protectionism in the British Empire had an adverse impact on the sugar industry.
In other parts of Southeast Asia, growth slowed as demand for industrial inputs such as rubber
and tin fell in the USA and Europe. Prices of key export crops collapsed, and production by
both large estates and smallholders was cut back.
Manchuria, which had become the puppet state of Manchukuo in 1932, under strict
Japanese control, also suffered a severe economic downturn in 1934, in part the result of the
change of regime. But Chao (1979: 257) argued that the main reason for the poor performance
was that Manchuria had fallen into a staple trap when the world market for its main export
crop, soybeans, collapsed after 1930. Both production and exports fell sharply. The Japanese
response was to implement a policy of economic diversification into mining and industry; this
was also their strategy in both Korea and Taiwan. The result was accelerated economic growth
after 1934, especially in Korea, but also in Manchuria1. In Taiwan, per capita GDP grew
through the 1930s and reached a peak in 1938. But after that there was a decline, and by 1941,
per capita GDP was below the 1929 estimate. This was also the case in British India, although
in both Indonesia and the Philippines the estimate for 1941 was above the 1929 level. Perhaps
1

More recent figures for Manchuria can be found in Yamanaka et al (2008: 478-517),
who estimate a GDP series from 1932 to 1940. Their figures also show rapid growth
after 1934, although slightly slower than that given by Chao.

the most surprising result of all is from independent Thailand, where there was virtually no
growth in per capita terms between 1913 and 19382.
As would be expected, the GDP growth which occurred across most of colonial Asia
from 1913 to 1940 led to some structural change in the composition of output, although the
changes were not very dramatic. The share of agriculture fell as a percentage of total output in
Manchuria and Korea, and in Indonesia, India and Burma, and that of industry (mining,
manufacturing, construction and utilities) increased (Tables 2 and 3). Industry accounted for
around 24 per cent of total GDP in Taiwan and Korea, and around 20 per cent in Manchuria
which was about the same as in the Philippines, although higher than in Indonesia, Thailand
and India. These figures support the claim that industrial growth was faster in the Japanese
colonies over the 1930s than in other parts of Asia. The next section examines in more detail
the factors which influenced industrial growth across Asia from 1900 to 1940.
What Drove Growth of Industry?
One consequence of the sustained growth in agricultural output in most colonies in East and
Southeast Asia in the early decades of the 20th century was the rapid growth of agricultural
processing industries. In those colonies where industry already accounted for between twelve
and seventeen per cent of GDP in 1913, agricultural processing played a significant role. Rice
milling was important across most of the region, as was saw-milling; these two industries
dominated manufacturing output in Thailand and Burma. In Java and the Philippines, the role
of sugar refining increased from the late 19th century onwards. The processing of natural
rubber into a form which could be exported to the USA and Europe also became important in
both British Malaya and Indonesia; by 1925 Singapore had become the main port for the
processing and onward shipment of rubber from both British Malaya and Indonesia (Huff
1994: 195-203). In Taiwan, food processing accounted for 70 per cent of manufacturing
output in 1914-16, and in spite of some attempt at diversification, the share of food processing
increased to 73 per cent in 1938-40 (Ho 1984: Table 3). In Manchuria, the processing of
soybean dominated manufacturing until the decline in output and exports in the 1930s.

A detailed discussion of growth in Thailand from 1870 to 1950 can be found in

Sompop (1989).

During the 1930s, there was a rapid acceleration in industrial growth, and particularly
manufacturing growth in both Korea and Manchuria, but in Taiwan the growth of mining and
manufacturing slowed after 1927 (Ho 1984: 366)3. In Korea the growth in manufacturing was
from a very low base; as late as 1929, the industrial sector (mining, manufacturing,
construction and utilities) accounted for less than eight per cent of GDP, which was low in
comparison with most other Asian colonies (Table 3). Some observers have argued that it was
deliberate Japanese policy to keep industrialization to a minimum in this period so that Korea
would remain a market for Japanese products (Kim 1973: 103). The growth during the 1930s
was based on agricultural processing only to a limited extent; especially in the north the fast
growing sectors were wood products, chemicals, ceramics, and machinery (Mizoguchi 1979:
Table 7). By 1938-40, almost 62 per of total manufacturing output in the north came from
chemicals, and a further 17 per cent from metals, machinery and ceramics (Suh 1978: 142).
Most of the investment in the modern factory sector in Korea was from Japan; it has
been estimated that 94 per cent of paid up capital in the Korean factory sector was owned by
Japanese interests in 1940 (Haggard, Kang and Moon 1997: Table 5)4 . In sectors such
electricity, gas and ceramics, Japanese firms accounted for 100 per cent of paid up capital.
Many of the Japanese firms were owned by large Japanese conglomerates (zaibatsu) who
were often given monopolies in particular sectors. These firms were closely tied to the
Japanese government and pursued the goals set by government, which over the 1930s were
determined by the military, rather than civilian interests (Chung 2006: 242-5). As Japan
consolidated its power in Manchuria, and Japanese strategy became more oriented to building
an empire stretching across northeastern Asia, the goals of Japanese policy in Korea became
more tightly linked to development needs in Manchuria. Korea was viewed as a base for
advance into the whole of North Asia (Chang 1971: 175). This had important consequences
for Korean business ventures in Manchuria and for Korean migration, which grew rapidly
over the 1930s.

From the mid-1930s, official strategy was to promote industrialization in Taiwan

through processing raw materials from China and Southeast Asia. Bauxite from
Indonesia was to be processed using electricity from the newly constructed facility at
Sun-Moon Lake (Schneider 1998: 182).
4
This figure has been challenged by Eckert (1991:54) who claims that it ignored the
many Japanese-Korean joint ventures.

Between 1934 and 1941, the growth of the modern factory sector in Manchuria was
remarkably rapid at almost 20 per cent per annum in real terms (Chao 1983; 32). The whole
industrial sector grew more slowly, at almost nine per cent per annum, but this was still a very
fast rate in comparison with most other parts of the world at that time5. By 1941, mining,
manufacturing industry, and construction accounted for 20.3 per cent of GDP (Chao 1983:
16). The role of heavy industry became more important; in 1938, metal industries, machinery,
chemicals, electricity and gas accounted for 69 per cent of paid up capital in the
manufacturing sector to sustain Japans war in Asia. The Japanese government, now running a
war economy, had ambitious plans for the further development of Manchurias industrial
capacity after 1942, when the second five year plan was initiated. Output of steel, pig iron and
iron ore was to be nearly doubled by 1946 (Myers 1983: 143). Further development of hydro
electricity, coal and shale oil was also planned. Had these targets been achieved, Manchuria
might have had a more developed industrial sector than any other part of Asia, with the
exception of Japan itself.
The very rapid development of industry in both Korea and Manchuria over the 1930s
can be contrasted not just with Taiwan, but also with most colonies in Southeast Asia. In
Indonesia, the collapse of the sugar industry led to a fall in industry as a share of GDP
between 1929 and 1934. The severe impact of the global depression caused the Dutch
authorities to take positive measures to encourage faster industrial growth. Foreign investment
was encouraged in sectors including automobiles, rubber tires and tubes, soaps and cosmetics,
batteries, cigarettes, electrical appliances and brewing (Shepherd 1941: 73). A measure of
protection was granted the domestic textile sector, mainly by placing quotas on Japanese
imports, and encouragement was given to small-scale weaving through the distribution of
improved handlooms. The processing of crude petroleum into a number of refined products
also grew rapidly. By 1941, the industrial sector accounted for 17.6 per cent of GDP (Table 3).
Shepherd (1941: 110) argued that the severe impact of the world depression forced colonial
authorities to take industrial policy more seriously not just in Indonesia, but also in Vietnam,
whereas in the Philippines, export producers had the advantage of preferential access to the
American market. This helped producers of sugar, vegetable oils and other processed
agricultural products, in the same way that rice and sugar producers in Taiwan were assisted

The GDP figures assembled by Yamanaka et al (2008: 515) show a very fast growth
rate of the industrial sector between 1932 and 1940 of around 27 per cent.

by access to the Japanese market. But it meant that industrial development outside agricultural
processing was held back until after 1946.
Investment in both infrastructure and directly productive in Asian colonies: Insights
from national accounts
One explanation for the better growth performance in the Japanese colonies after 1930 could
have been that they were investing more in both infrastructure (roads, railways, irrigation) and
in directly productive activities in agriculture, mining, and manufacturing. Certainly it was
true that in all parts of the Japanese empire, government played a key role in promoting
investment in both infrastructure and in productive activities, both directly through the
government budget, as well as by offering considerable subsidies to the private sector. But
were governments more pro-active in promoting investment in the Japanese colonies than in
other parts of colonial Asia? This question will be addressed below. What is clear from the
national income studies for the Japanese colonies is that gross domestic capital formation as a
percentage of GDP increased between 1924 and 1938. There was little obvious impact from
the global depression of the early 1930s (Table 4). By 1938, the results of increased
investment in infrastructure were obvious. The proportion of land irrigated had increased in
both Korea and Taiwan. Transport infrastructure also grew, and by 1938, length of road and
rail relative to area in Taiwan and Korea was higher than in most other parts of Asia (Table 5).
Most of the national income studies which have been carried out for other Asian
colonies use the production approach, so estimates of gross domestic capital formation
(GDCF) relative to GDP are not available. While Dutch, French, British and American
colonial administrations were all aware of the importance of investment in both infrastructure,
and in productive sectors, government investment was often constrained by conservative fiscal
policies especially after 1930. In Singapore, Sugimotos estimates show that in 1929 the
GDCF/GDP was higher than in Japan or the Japanese colonies, although it fell sharply in the
early 1930s (Table 4). But by 1938 it was again higher than in the Japanese colonies. We do
not have estimates of GDCF for other parts of Asia, although there is considerable evidence
that both government and private investment fell after 1930. The reasons for this are examined
below.

Given the limited information from national accounts data, this paper will explore
sources of investment funds in Asian colonies in the years from 1900 to 1940 by looking first
at evidence on government expenditures and then private expenditures. It will be argued that
foreign borrowing became an important source of funds for several colonial governments,
although it was usually constrained by conservative policies laid down by metropolitan
governments. It will also be argued that foreign direct investment by private companies was of
greater importance in colonial Asia than is often realized. But a number of factors constrained
private sector investment across colonial Asia; these will be discussed in more detail below.
The paper concludes that governments in Asia prior to 1940 were often less open in their
investment policies than they themselves claimed, and that they often neglected investment
opportunities in infrastructure and in education while adopting fiscal and exchange rate
policies which deterred private sector investment.
The Role of Government in Investment
By the first decade of the twentieth century, all the colonial powers in East and South
East Asia, were trying to establish effective administrative structures which prioritised the
centralization and reform of fiscal systems (Elson 1992: 149-54). Independent Siam also
carried out major reforms of government revenue policy (Ingram 1971: Chapters 8 and 9). On
the revenue side, the metropolitan powers wanted tax systems under the direct control of the
colonial administrations which were sufficiently buoyant to provide enough revenues to fund
current expenditures while at the same time providing a surplus for investment. Old practices
of revenue farming were eliminated over the last decades of the nineteenth and the early
twentieth century in favor of more "modern" revenue systems relying on trade taxes, on
domestic excises and sales taxes and in some cases on corporate and individual income taxes
(Butcher 1993).
But there were considerable differences in outcomes of revenue policies in different
parts of colonial Asia. In terms of dollars per capita, government revenues per capita in 1910
varied between around one dollar per capita in Vietnam to 15 dollars in the Federated Malay
States (FMS) Although several of the colonies with low revenues per capita in 1910
improved their revenue performance over the next two decades, none caught up with either
the FMS or the Straits Settlements. By 1929, government revenues in Indonesia, the
Philippines, Korea and Burma were around five to six dollars per capita, more than in

Thailand and Vietnam but still well below Taiwan, the Federated Malay States and the Straits
Settlements. With the onset of the world depression, revenues fell in terms of dollars per
capita in most colonies, and had not recovered to 1929 levels by 1938 (Booth 2007: Table
4.3).
What proportion of government revenues were being used for investment in
infrastructure, health and education? By the early 1930s there were quite striking differences
across East/Southeast Asia in patterns of government expenditures. Manchuria, Indonesia and
Thailand were all devoting more than thirty per cent of budgetary expenditures to police and
defence while the Philippines, Taiwan and the Federated Malay States (FMS) were spending
less than ten per cent (Table 6). French Indochina, Korea, the FMS and Taiwan were all
spending more than 25 per cent on public works and agriculture, while the Philippines was
spending over one third of the budget on health and education, a much higher percentage than
in any other colony. The comparatively low proportion of the budget spent on public works in
Indonesia compared with other colonies in the early 1930s is surprising, given that Java in
particular had better infrastructure endowments than most other parts of Asia (Table 4). In fact
most of the public spending on infrastructure in Indonesia took place from the 1890s to the
1920s. De Jong and Ravesteijn (2008: 66) assembled a series on real government expenditure
on public works from 1871 to 1940. Expenditures peaked in 1921, and fell thereafter; in 1939
expenditures were only five per cent of the 1921 level.
In French Indochina, the public sector share of total French capital investment exceeded
that of the private sector from 1911 to 1936. In a number of years from 1913 to 1923 private
investment flows were negative and although they increased in the latter part of the 1920s, they
fell sharply with the onset of the global depression (Lindblad 1998: Table 4.4). Marseille
(1984: 117-8) also stressed the importance of public investment across the French empire, and
pointed out that in the fiscal federations, of which Indochina was the most important, local
budgets were often important in financing infrastructure. But even before the onset of the
global slump in the early 1930s, the available funding was never enough to carry out the
ambitious plans for long-term investment advocated by Albert Sarraut and others in the 1920s.
Thomas (2009: 1015) has argued that at no stage in the interwar years did France possess the
financial resources needed to match the economic costs of colonial reform. Parliamentarians
of all political parties in metropolitan France had other priorities and their failure to match bold

statements of intent with the resources necessary to implement them was an important factor in
the growing strength of the nationalist movement, especially in Vietnam6.
Government borrowing could have prevented at least part of the decline in spending on
capital works in Indonesia over the 1930s. In fact the public debt did grow rapidly relative to
both GDP and exports between 1928 and 1933. By 1933 debt service had reached twenty per
cent of exports, and 21 per cent of total government expenditures (Booth 1998: 146). These
figures alarmed officials in both the colony and in the Netherlands, and there was some decline
in the stock of debt and debt service relative to exports between 1934 and 1938. But the climate
of the times was not conducive to new initiatives in public works, and projects such as the
trans-Sumatra railway were postponed indefinitely. In per capita terms the stock of public debt
in 1935 was lower than in British Malaya but higher than in British India (Table 7). In British
Malaya, total investment as a proportion of GDP recovered rapidly between 1934 and 1938, at
least partly because of increased government expenditures on capital works. In Singapore,
government fixed capital formation increased as a share of GDP over the 1930s compared with
the decades from 1900 to 1930. Whereas in earlier decades it had been a small fraction of total
capital formation, by the 1930s it was almost 20 per cent. Government consumption
expenditures also increased as a percentage of GDP over the 1930s; total government
expenditures amounted to 21.5 per cent of GDP over the 1930s. This percentage was only
surpassed in the 1980s (Sugimoto 2011: 266).
Perhaps surprisingly, public debt per capita in both Thailand and the Philippines was
much lower in 1935 than in Indonesia or British Malaya (Table 7). In terms of governance,
Siam was independent, and the Philippines had been granted substantial self-government in
1935, and promised full independence a decade later. So it might have been expected that both
countries would have adopted a more positive approach to foreign borrowing. In fact both were
very conservative. Schwulst (1931: 46) found in his interviews with Thai officials in early 1931
that they were determined to liquidate the outstanding government debt rather than incur more.
Since 1927, substantial sums were taken from current revenues to set up a fund for debt
retirement. The policy of reducing the debt, both in absolute terms and relative to total
6

Thomas (2005) has argued that Sarraut and other French advocates of greater
spending on colonial economic development thought that economic growth was
essential to achieve imperial security, and defeat radical elements who wanted
independence.

10

budgetary revenues continued through the 1930s7. The total government capital liability at the
end of the fiscal year 1938/9 was 5.7 million pounds, which was about half what it had been a
decade earlier. Debt charges fell from a peak of 12.3 per cent of total budgetary revenues in
1931/32 to 5.8 per cent in 1938/98.
To what extent did this conservative approach to fiscal policy and foreign borrowing in
affect economic growth, which was very slow in Thailand after 1900? Several discussions of
pre-1940 economic policy-making in Thailand have argued that while the ultra-cautious
policies achieved their objective of reducing dependency on foreign loans, they also retarded
growth (see e.g. Warr and Nidhiprabha 1996: 29). These authors stressed the influence of the
British advisers in urging caution regarding the implementation of costly public works projects
which would have necessitated foreign loans, although the evidence suggests that it was senior
Thai officials who made the final decisions. The most famous example of development
deferred was probably the decision not to implement the ambitious irrigation projects in the
central plains which were first suggested by the Dutch expert, J. Homan van der Heide, in the
early years of the 20th century9.
Ingram (1971: 196-7) pointed out that in 1903 when the first report from van der Heide
was presented to the Thai government, the baht had just been linked to gold, and the
governments priority was to build railways. The newly appointed British financial adviser
opposed embarking on an expensive new irrigation system in addition to railways, which the
Thai military viewed as essential for defence of the realm. Although van der Heide
subsequently proposed a modified program at lower cost, it was only in 1916 that a much less
ambitious irrigation project was begun, funded from current revenues. Subsequent analyses
have argued that deferring irrigation development slowed agricultural growth, and especially
the growth of rice output. Feeny (1998: 428) has estimated that the van der Heide proposal
would have generated an internal rate of return of around 22 per cent which was way above the
cost of borrowing at the time.

Because of falling export values in the early 1930s, the debt service to export ratios
increased to around six per cent in 1935, a much lower percentage than in Indonesia.
It fell after that (Sompop 1989: 176).
8
These figures are taken from Central Service of Statistics (1940)
9
For a complete list of Homan van der Heides published and unpublished writings
on Thailand see Feeny (1982: 230).

11

The cautious approach to government investment expenditures in most parts of

Southeast Asia in the interwar years and the determination to reduce foreign debt meant that
many investment projects which might have yielded good returns were not implemented. To
what extent was this also the case in the Japanese colonies? In Manchuria, government
revenues and expenditures per capita were lower than in either Taiwan or Korea in 1932 in
terms of yen per capita, although they increased rapidly after 1933 and by 1938, they had
almost caught up with Korea (Tables 8 and 9). The share of spending on defence and policing
was over 40 per cent in 1932, but had fallen to 27.5 per cent in 1935, which was lower than in
either Siam or the Netherlands Indies (Table 6). Much of the military expenditure was for
regional pacification (Myers 1982: 237). Most of the rest of the general account budget was
devoted to administrative expenditures; expenditures on infrastructure were taken from the
special account and from other sources. Myers (1982: 240) argued that dependence on the
special account to finance development expenditures continued throughout the period of
Japanese control of Manchuria, but after 1938 reliance on debt to fund special account
expenditures grew.
Manchuria was only controlled by Japan after 1932, by which time Korea had been a
Japanese colony for two decades, and Taiwan for over three decades. In Taiwan, the Japanese
regime embarked on a program of infrastructure development, with a particular focus on
transport and communications. In the first decade of the 20th century, 74 per cent of total
capital formation came from government, but the ratio dropped sharply after 1913, and was
under 30 per cent for most of the inter-war period (Mizoguchi and Yamamoto 1984: Table 5).
In the early phase of Japanese control, the government depended on grants and loans from
Japan, but there was a rapid growth in government revenues from within the colony after
1910 and also growth in private savings which were invested in commercial agricultural
enterprises including sugar and rice processing. By the second decade of the 20th century, the
Taiwanese balance of payments was in surplus, and significant amounts of capital flowed
back from Taiwan to Japan. The Bank of Taiwan made loans to Japanese companies, and the
Taiwanese government sent its reserve funds back to Japan, so that Taiwan became in effect
a net creditor of Japan (Mizoguchi and Yamamoto 1984: 408-411).
The situation in Korea was rather different. Mizoguchi and Yamamoto 1984)
estimated that from 1913 onwards, the share of government in total capital formation was
around 60 per cent, and unlike in Taiwan there was no tendency for this share to fall in the

12

inter-war years. But more recent figures do show a decline in the government share of
investment in the 1920s to around 37 per cent in 1929, although there was an increase in the
1930s (Kim et al 2006: 422). Government revenues per capita in Korea were lower than in
Taiwan, and a larger proportion of both government and private investment was financed
from Japan. The industrialization spurt of the 1930s in Korea was induced and sustained by
a very large capital investment from Japan (Mizoguchi and Yamamoto 1984: 412). The
Korean balance of payments remained in deficit until the late 1930s. From 1910 to at least the
early 1940s, Taiwan was a profitable colony for metropolitan Japan. But Korea and later
Manchuria were not. Indeed by the 1920s, it was already being argued that from a fiscal point
of view, the colonies as a whole have thus far clearly been a liability rather than an asset
(Moulton 1931: 180).
Much of the criticism of the costs of Japanese colonial activities came from the
private sector. In the early part of the 1930s, some industrialists in Japan looked to the
colonies, especially Manchuria, as providing relief from recession at home (Young 1998:
201). The need for new markets for consumer goods exports became more pressing over the
1930s as access to markets in South and Southeast Asia was curtailed by the protectionist
policies of Britain, France, the Netherlands and the USA. But demand in both Korea and
Manchuria was for producer goods, and this was not viewed as an unmitigated blessing to
Japan. Young (1998: 234) quotes a speech by the president of Mitsubishi Heavy Industries in
1940, pointing out that the diversion of plant and equipment to Manchuria was causing
shortages at home. Bankers also complained at what were seen as excessive demands for
loans in Manchuria which was causing problems in the Japanese financial market. But the
Japanese government, increasingly dominated by the military, was not listening.
The Role of the Private Sector in Investment
By the 1930s, there seems to have been a clear divide between those colonies in Asia where
private sector investment dominated as a source of investment funds and those where the
public sector was more important, if not dominant. In the first category could be found
Taiwan, Indonesia, British Malaya and probably the Philippines and Thailand. In the second

13

fell India, French Indochina, Korea and probably Manchuria10. In Indonesia, the estimates of
the aggregate value of corporate investment compiled by Creutzberg (1977: 18) show that
government services accounted for around one third of total corporate investment in 1900,
but had fallen to only 21 per cent by 1939. Figures on annual expenditure on fixed assets
show that government services (mainly public works) accounted for around 22 per cent of the
total in 1920, but by 1929 had fallen to 10.6 per cent. Both government and private
expenditures on fixed assets fell steeply between 1929 and 1935, and recovered only partially
until 1939, mainly as a result of increased private sector expenditures (Creutzberg 1977: 456). In Singapore, expenditure on gross capital formation recovered in the latter part of the
1930s, again mainly because of private investment (Sugimoto 2011: 185).
What proportion of private sector investment in Southeast Asia was foreign in origin?
As Linblad (1998: 5-10) has pointed out, this is not an easy question to answer. In most of the
Asian colonies there were many firms owned and operated by expatriates which only
operated in the colony; they were not controlled from headquarters located in the metropole
or elsewhere. They raised investment funds from within the colony, often using their profits
to expand their enterprises. Should they be considered foreign or local? What about the many
companies across Southeast Asia operated by Chinese and Indian migrants? Most of the
investment by Japanese corporations in Korea and Manchuria would not have been
considered FDI by the Japanese, as the colonies were increasingly considered part of Japan11.
In addition much FDI in fact consisted of reinvested profits. Lindblad argued that, for these
and other reasons, stock data are probably more reliable than flow data, although even the
stock data is sometimes difficult to interpret. Lindblad (1998: Table 2.1) puts the total value
of FDI stock in Southeast Asia in 1937 at 2.6 billion dollars, a rather lower figure than that
given by Dunning (1993: Table 5.2) of 3.3 billion dollars.

10

Tomlinson (1986: 146) in a comparison of foreign investment in India and

Indonesia estimated that by the late 1930s the value of private sector investment in
India was only slightly below that of the government sector, although in earlier years
he found that government was more important. He argued that the Dutch/Indonesian
case conformed more closely to the classic model of economic imperialism with
investment dominated by private businesses, and heavily skewed to extractive
sectors in agriculture and mining. Certainly remitted profits from Indonesia were
more far more important to the Dutch economy after 1900 than were profits from
India to the British economy.
11
Korea was formally made part of Japan in 1942.

14

Lindblads figures show that Indonesia accounted for almost half of the Southeast
Asian total, and British Malaya, including Singapore, almost 15 per cent. By the 1930s,
investment in the oil and mining sectors accounted for around 36 per cent of total equity in
corporate investment in Indonesia, and half of all dividends (Lindblad 1998: Table 4.6).
Swan (2009: 97) quotes from several studies of foreign investment in Southeast Asia carried
out by Japanese researchers in the 1930s which also showed that Indonesia was the largest
single recipient, although one estimate gave a higher value to the Philippines compared with
the estimates by Callis (1942).
Given the data problems, there is probably little point in trying to estimate what
proportion of private investment in the Asian colonies accrued from foreign sources either
directly or indirectly from reinvested profits 12 . In 1971-75, it was estimated that FDI
accounted for fifteen per cent of gross domestic capital formation in Singapore and Malaysia,
around five per cent in Indonesia, three per cent in Thailand and one per cent in the
Philippines (Yoshida et al. 1994: 72). Given the fact that government investment was
probably a lower percentage of total capital formation in these countries in the early 1930s
than in the 1970s, and that domestic private investment was also probably lower, it is likely
that foreign private investment accounted for a larger part of total capital formation in the
1930s than forty years later, although it is difficult to know by how much. It is also important
to bear in mind that most estimates of private investment in the pre-1940 era, and indeed
more recently, ignore direct investment in agricultural smallholdings. Bauer and Yamey
(1957: 29-30) pointed out that across Asia and Africa millions of farmers invested money and
time in planting trees (rubber, coffee, cocoa etc) and in building irrigation systems, in the
expectation that such efforts would yield a flow in income over time. They argued that
disregarding such investment can give gravely misleading statistical results. There can be
little doubt that if estimates of investment by smallholders had been included in the Asian
statistics, the share of total investment made by the private sector would have been larger.

12

The estimates of expenditure on fixed assets from 1910 to 1939 assembled by

Creutzberg (1977: Table 1) show that domestic expenditures accounted for over half
the total (public and private) in almost all years, except for 1937-39, which probably
reflects an increase in FDI flows, although the totals were still much smaller than
prior to 1930.

15

Factors Impeding Investment in Colonial Asia

Most colonial governments across Asia seemed convinced that investment in
infrastructure, especially transport infrastructure, would attract private investment
from both domestic and foreign sources. Indeed one of the most frequent criticisms of
infrastructure spending was that it was skewed to those regions where natural
resources were being extracted, and that other projects were ignored. But while the
need for greater investment in infrastructure was clear to many colonial officials, all
faced difficulties in mobilizing funds through the budget. Tax and non-tax revenues
were constrained by the low incomes of the great majority of the population; there
was also a fear that higher taxes would lead to popular unrest. Large corporations
owned by foreign investors were taxed in some colonies, but not in others. British
Malaya refused to impose corporate or personal income taxes before 1942, although
across the straits the Dutch authorities did levy income taxes which accounted for a
growing proportion of government revenues. Government borrowing was often
constrained by home governments who worried that colonies might find themselves
burdened with high levels of debt repayment. In Thailand, officials feared that
external borrowing could lead to foreign control, the emphasis was on reducing debt
especially in the 1930s.
Transfers from metropolitan budgets were out of the question in the major
European colonial powers where the domestic franchise was being widened and trade
unions were gaining more political power. Especially after 1918, electorates were
demanding more government services in sectors such as health and education as well
as provision of unemployment benefits and old age pensions. People in Britain,
France and the Netherlands might have taken pride in their overseas empires, but at
the same time they expected governments to give priority to their needs over those of
indigenous populations in far-flung colonial territories. The Japanese government was
arguably less beholden to its domestic electorate, but there was considerable
resistance to large-scale expenditures in Korea and Manchuria from business groups
who argued that there were more profitable investment opportunities at home, or even
in other parts of the world not under direct Japanese control.

16

If colonial governments were frequently constrained in the investment

resources they could mobilise, their attitude to private sector investment was often
ambivalent. In principle, investment by companies based in the metropolitan country
was encouraged in sectors such as estate agriculture and mining. In most Asian
colonies, foreign investment was heavily skewed to companies based in the
metropole; in the Japanese colonies there was virtually no investment from nonJapanese sources. More broadly, it has been asserted that as the military gained more
economic power in Japan in the 1930s, more emphasis was given to economic
autarky. Cumings (1984: 12) argued that in the 1930s Japan largely withdrew from
the world system and pursued, with its colonies, a self-reliant, go-it-alone path to
development. This seems to be an exaggeration, at least for Japan itself. Until 1937
two-thirds of Japanese exports went to countries outside the Japanese empire,
reflecting Japans need for foreign exchange to buy both capital goods and raw
materials from other parts of the world (Table 10). Manchuria also was sending over
40 per cent its exports by value to countries outside the Japanese empire in most years
between 1933 and 1938. Korea and especially Taiwan were much more reliant on
Japan both as a source of imports and a market for its exports in the 1930s, although
in the early part of the 20th century Taiwan was less tied to Japan (Booth 2007: 91).
France also pursued a trade and investment policy which tied French
Indochina tightly to metropolitan France and its empire. While most other colonies in
Asia experienced a significant increase in imports from Japan from the 1920s
onwards, French Indochina (FIC) was the glaring exception (Booth 2003: 445).
Quantitative restrictions on imports from outside the French empire meant that by
1934, when Japanese imports into Indonesia accounted for 32 per cent of total
imports, the figure for FIC was only two per cent (Booth 2003; 445). Restrictions on
inward flows of investment were also very tight. By 1937, 97 per cent of FDI into
Indochina came from France, which was a higher proportion than that received from
the metropole in any other colony in Southeast Asia (Lindblad 1998: 14). Swan
(2009: 97) suggests that the Japanese were deterred by French policies and looked
elsewhere in Southeast Asia for trade and investment opportunities.
Where did they look to? By the late 1930s Swan (2009: 98) shows that three
colonies in Southeast Asia attracted most of the Japanese investment into Asia outside

17

the Japanese colonies. These were in order of importance British Malaya (including
North Borneo and Sarawak), the Philippines and Indonesia. In both Indonesia and
British Malaya, around 70 per cent of FDI came from the Netherlands and Britain
respectively, which left some room for other would-be investors. Commodity trade in
Indonesia and British Malaya was also much less tied to their metropoles; as late as
1939, they sent less than 15 per cent of exports to the Netherlands and the UK
respectively (Booth 2007: 91), and sourced less than 20 per cent of imports from the
mother countries This reflected the fact that the markets for commodities such as
rubber, tin, vegetable oils and petroleum products were in North America, Germany
and Japan while Japan remained an important source of imports, even after quota
restrictions had been imposed. Large employers of labour in both Indonesia and
British Malaya, especially the estates sector, were very opposed to the imposition of
quotas on Japanese goods, arguing that it would push up the cost of living at a time
when many firms were still recovering from the world depression.
In the Philippines trade was more tied to the USA than investment flows. By
the late 1930s, the Philippines was sending 82 per cent of its exports to the USA
which was almost as high a proportion as Taiwan was sending to Japan. This reflected
the special quotas which had been negotiated for sugar and other exports at the time
of the transfer of powers to the Commonwealth. But only 52 per cent of FDI came
from the USA (Lindblad 1998: 14). Although the accumulated stock of outward FDI
from the USA had grown faster than for the world as a whole between 1913 and 1938,
much was directed to the countries in Europe, Canada and Latin America (Dunning
1993: 117). One reason why American, and other investors might have avoided the
Philippines was the over-valued peso, which affected the ability of traded goods
industries to compete on global markets (Hooley 1996: 296-7).
Exchange rate policies also affected the investment climate in other Asian
colonies. The decision to stay on the gold standard in the Netherlands led to a real
appreciation of the colonial guilder which placed industries producing traded goods
under intense competitive pressure. Japanese exporters were not slow to take
advantage of their price advantage in the Indonesian market and Japanese goods
poured into the colony, even after the Dutch imposed some controls in 1934. The
Indochina piaster appreciated in the 1930s against most other currencies although

18

imports from Japan and elsewhere were restricted by the controls imposed on imports
originating from outside France. The policy of protectionism did lead to higher costs
in French Indochina compared with neighbouring countries; Norlund (2000: 218)
quotes estimates made by Pierre Bernard that prices were fifteen per cent above those
in other parts of Asia. Some export industries such as the rubber estates were assisted
with interest-free loans but the policy climate was not conducive to a policy of
broader liberalization of the trade and investment regime, which might have
encouraged more inward investment from outside the French empire.
Conclusions
With the wisdom of hindsight, it is easy to criticize the investment policies of colonial
governments across Asia. Metropolitan governments in Britain, France and the Netherlands
favoured conservative fiscal policies; budgets were to be balanced and government
borrowing was not encouraged, even for projects which would have yielded quite healthy
returns. These attitudes often frustrated colonial officials who could see the development
potential of the regions they were governing but could not mobilise the resources. It is not
true that governments were entirely laissez faire; government borrowing did increase in
Indonesia after 1900, and in other colonies as well. Roads, railways, ports and irrigation
systems did get built, and in turn facilitated the growth of important export industries. But
more could and should have been done. Those colonies which spent a substantial share of
revenues on defence and policing can be criticized for neglecting, or under-investing, in more
productive infrastructure. The Philippines stands out as a colony where a high proportion of
the budget was devoted to health and education, and by the 1930s it had the most developed
education system in Asia. But less was done in terms of infrastructure development,
compared to what the Dutch achieved in Java, or what the Japanese achieved in both Taiwan
and Korea.
Japanese colonialism has often been considered more developmental than the
European variants. Certainly in the 1930s, investment increased as a share of GDP, although
it was lower in both Taiwan and Korea than in Japan itself. In both Korea and Manchuria, the
accelerated industrial growth which occurred over the 1930s was certainly due to more
assertive government policies, both in building infrastructure and in assisting private
industries to invest in sectors which were deemed essential for the growth of the Greater

19

Japanese military-industrial complex. Taiwan differed from other parts of the Japanese
empire in that it ran for most years after 1910 a healthy surplus on its balance of payments,
which was used to finance investment in Japan itself and in the other colonial territories. In
contrast to Korea and Manchuria, Taiwan grew less rapidly over the 1930s; per capita GDP
was much the same in 1940 as in 1930. While the industrial sector did grow relative to other
parts of the economy, much of the growth seems to have been based on agricultural
processing. Living standards were probably higher than in Korea or Manchuria, and may
indeed have been comparable with Japan itself by the late 1930s, but the economy still had
most of the classic colonial features; exports were dominated by a narrow range of
agricultural commodities almost all of which were exported to Japan, and a surplus was run
on the balance of payments.
In most parts of colonial Asia, government development plans were frustrated by the
small size of the domestic revenue base, and by a reluctance to borrow. Given these
constraints, it might have been expected that governments would encourage private investors,
especially from abroad. But the evidence indicates that most colonial regimes pursued
policies which discriminated against investors from outside the metropolitan country. By the
1930s Japan was excluding virtually all investment from outside Japan, and the French took a
similarly protectionist stance. The Netherlands and Great Britain claimed to be more liberal
but the evidence would suggest that investors from the home economy were favoured,
although policy did change in Indonesia after 1935, when investment by British and
American companies was more actively encouraged. In addition exchange rates policies often
discriminated against investment in traded goods sectors. Only in the final third of the 20th
century did policies towards foreign investment begin to change across much of Asia, by
which time governments were freed of direct colonial control, although in at least some cases
open-type policies were still viewed with suspicion.

20

Table 1: Growth in Per capita GDP, Selected Asian Colonies, 1902-40

(1929=100)
Country

1902

1913

1929

1934

1940*

Korea
Taiwan
Manchuria

n.a
54
n.a

76
65
90**

100
100
100

112
101
81

145
100
121

Philippines
Indonesia
India
Burma ***
Thailand
Singapore

47
64
90
77
93
58

74
80
92
68
106
59

100
100
100
100
100
100

95
86
96
93
n.a
81

106
104
94
82
104
102

* 1938 for Thailand; 1939 for Singapore

** 1924
*** Figures refer to 1901/02, 1911/12, 1931/32, 1936/7 and 1938/9
Sources: Korea: Kim et al (2008: 406-11); Taiwan: Sato et al (2008: 231-3); Manchuria: Chao (1983;
Table A-3); Philippines : Hooley (2005: Table A.1); population data from Bureau of Census and
Statistics (1941: 13). Indonesia: van der Eng (2013); India: Sivasubramonian (2002: 136); Burma: Aye
Hlaing(1965: 289); Thailand: Sompop (1989: 251); Singapore: Sugimoto (2011: 49, 185)

21

Table 2: Proportion of GDP from Agriculture: Selected Colonies, 1913-1941

1913

1924

1929

1934

1938/41*

Korea
Taiwan
Manchuria**

66.9
45.2
n.a

56.7
47.2
49.7

52.3
42.2
50.7

49.7
45.6
36.2 (52.7)

36.0
39.1
33.9 (31.3)

Philippines
Indonesia
India
Burma***
Thailand

38.5
38.3
60.0
68.6
44.6

37.8
36.6
59.9
55.6
n.a

39.1
32.5
56.1
55.6
43.8

40.8
34.3
54.7
59.9
n.a

37.3
32.4
50.3
54.3
44.3

*1938 data for Thailand; 1940 data for Korea and the Philippines; 1941 for all others except Burma.
** Figures in brackets are estimated from Yamanaka et al (2008).
***Burma percentages refer to 1911-12, 1921-22, 1926-27, 1931-32, 1938-39.
Sources: Korea: Kim et al (2008: 406-9); Taiwan: Sato et al (2008: 233, 326); Manchuria: Chao
(1983: 16); Philippines : Hooley (2005: Table A.1); population data from Bureau of Census and
Statistics (1941: 13). Indonesia: van der Eng (2013); India: Sivasubramaniam (2002: 136); Burma:
Saito and Lee (1999: 7, 214); Thailand: Sompop (1989: 251).

22

Table 3: Proportion of GDP from Industry*: Selected Colonies, 1913-1941

1913

1924

1929

1934

1938/41**

Korea
Taiwan
Manchuria***

6.4
12.1
n.a

10.4
15.7
14.7

12.3
21.3
12.9

15.6
20.6
19.8 (9.5)

24.3
23.7
20.3 (19.5)

Philippines
Indonesia
India
Thailand

16.1
16.1
12.3
17.1

18.8
14.3
11.5
n.a

18.5
15.6
13.5
17.1

23.8
13.1
14.6
n.a

19.6
17.6
13.7
17.3

* Mining, manufacturing, construction and utilities.

**1938 data for Thailand; 1940 data for Korea and the Philippines; 1941 for all other countries
***Figures in brackets from Yamanaka et al (2008)
Sources: Korea: Mizoguchi and Umemura (1988: 238-9); Taiwan: Sato et al (2008: 233, 326);
Manchuria: Chao (1983: 16); Philippines : Hooley (2005: Table A.1); Indonesia: van der Eng (2013);
India: Sivasubramaniam (2002: 136); Thailand: Sompop (1989: 251).

23

Table 4: Gross Domestic Capital Formation as a Percentage of GDP in Japan and Japanese
Colonies: 1924-1938
1924

1929

1934

1938

Japan
Taiwan
Korea
Manchuria

16.1
8.6
5.0
11.5

18.1
14.1
7.8
12.6

16.9
16.2
7.9
17.4

26.0
15.0
11.7
23.5

Singapore

14.8

37.7

20.7

28.3

Sources: Japan and Taiwan: Mizoguchi and Umemura (1988: 226-38). Korea: Kim et al (2008: 422);
Manchuria: Chao (1979: 258-61). Singapore: Sugimoto (2011: 185).

24

Table 5: Infrastructure Endowments, Late 1930s

Country/Year

Roads

Railways

(Km. per thousand

(Km per thousand

square kilometers)

square kilometers)

Electricity*
(Installed
capacity)

43.3**

38.32

107.2

25.7

29.05

Manchuria (1938)

35.6

7.0

n.a

Philippines (1939)

70.5

4.5

4.76

Indonesia (1940)

27.7

3.9

2.97

171.9

40.5

3.01

Outer Islands

17.0

1.1

2.86

Indochina (1936)

38.8

3.9

3.82

100.1

12.5

36.06

45.2

3.4

3.69

Taiwan (1937)

94.4

Korea (1940)

Java

British Malaya (1938)

Burma (1938)

*Data refer to installed capacity in kilowatts per 1000 population for the following years: 1938
(Philippines), 1937 (British Malaya) and 1940 (Indonesia, Korea and Taiwan). For Burma the data
refer to the capacity of the large plants with an estimate for smaller plants.
** Data exclude 2098 kilometers of special track for the transport of sugar.

Sources: Philippines: Bureau of Census and Statistics (1947; 279, 304-7); Indonesia: Department of
Economic Affairs (1947: 56, 97); Indochina: Robequain (1944: 94-97, 285); British Malaya:
Department of Statistics (1939); Burma: Andrus (1948: 226, 237); Korea: Kim et al (2008: 488, 608)
Taiwan: Grajdanzev (1942: 118-9); Barclay (1954: 42); Manchuria: MYB (1941: 575, 595)

25

Table 6: Percentage of Budgetary Outlays on Law/Defence, Public Works/Agriculture

and Education/Health, 1930s
Country/Year

Law/Police/

Public Works/

Education/

Defence

Agriculture

Health

Manchuria (1934)

32

5 *

3**

Indonesia (1931)

32

12

Thailand (1931)

31

15

French Indochina (1931)

14

36

Korea (1936)

11

31

FMS*** (1931)

28

20

Philippines (1931)

18

36

Taiwan (1935)

28

* Expenditures on industry and communications

** Expenditures on education only
*** Federated Malay States
Sources: Korea: Grajdansev (1942: 218); Taiwan: Grajdansev (1944: 137); Manchuria (MYB 1941:
203-4); Others: Schwulst (1931: 57)

26

Table 7: Public Debt per Capita (US $)

Country

1935

1955

British Malaya

18

27

Indonesia

16

17

India

12

18

Philippines

28

Thailand

11

Note: For 1955, official exchange rates are used to convert to US dollars in all cases.
Sources: 1935: British Malaya: Department of Statistics (1936) and Federation of Malaya
(1956: 90); Indonesia: Creutzberg (1976: Table 7) and Bank Indonesia (1956: 75); Thailand:
1935: Central Service of Statistics (1940: 416); 1955 (Ingram 1971: 301). Philippines and
India: United Nations (1948); Philippines: Central Bank of the Philippines (1956: 111); India:
1955 from International Monetary Fund International Financial Statistics Yearbook 1958,
Exchange rates for 1935: van der Eng (1993); 1955 from International Monetary Fund
International Financial Statistics, various issues between 1957 and 1960.

27

Table 8: Revenues Per Capita: Japanese Colonies: 1925-1938

(Yen)

Year
1925
1929
1932
1934
1936
1938

Taiwan
29
34
25
28
33
42

Korea
10
12
11
14
17
25

Kwantung*
12
11

SMR
Zone

Manchuria

14
14
4
9
9
21

*Kwantung leased territory; SMR zone refers to land along the South Manchurian Railway
Sources; Mizoguchi and Umemura (1988: 256, 291-3). Expenditure figures from Kwantung and the
SMR Zone from MYB (1933: 96-8). Population figures for Kwantung and the SMR Zone from
Mizoguchi and Umemura (1988: 313-4)

28

Table 9: Expenditures Per Capita: Japanese Colonies: 1925-1938

(Yen)

Year
1925
1929
1932
1934
1936
1938

Taiwan
22
27
20
22
25
33

Korea
9
11
10
12
15
22

Kwantung*
7
7

SMR*
Zone

Manchuria

14
14
4
9
9
21

*Kwantung leased territory; SMR zone refers to land along the South Manchurian Railway
Sources; Mizoguchi and Umemura (1988: 256, 291-3). Expenditure figures from Kwantung and the
SMR Zone from MYB (1933: 96-8). Population figures for Kwantung and the SMR Zone from
Mizoguchi and Umemura (1988: 313-4)

Table 10: Percentage of Export Trade with Countries Outside the Japanese Empire, 1933-38

1933
1934
1935
1936
1937
1938

Japan

Korea

Taiwan

70.3
67.9
68.0
66.2
67.1
55.4

13.0
11.3
10.3
11.0
13.5
17.1

5.8
7.0
8.3
5.8
5.1
4.1

Manchuria
54.7
28.9
48.4
53.4
50.2
42.5

Source:Mizoguchi and Umemura (1988: 246-51); Manchuria figures from MYB (1941: 317)

29

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