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East Asia is the fastest-growing region in the world, with a domestic market that is three times that of the European Union (EU). But how much would East Asia benefit from integrating its economies, and how fast and how far should such integration go?
In 2004, the EU welcomed 10 new members, bringing the total to 25 .
The question is: would East Asia benefit by emulating the EU’s example?
While integration of East Asian economies could benefit the region, it was the speed and nature of such a move that 80 delegates from Asia, Europe, and the United Kingdom discussed at a 1-day symposium hosted by the Asian Development Bank (ADB) at the Royal Society in London in late 2004.
The symposium, held in collaboration with Asia House—a nonprofit, nonpolitical organization based in London that promotes understanding of Asian cultures and economies—discussed the possibility of East Asian integration focusing on trade, finance, and infrastructure. Poverty reduction, governance, and environmental sustainability were recurrent underlying themes.
According to Shamshad Akhtar, Director General of ADB’s Southeast Asia Department, East Asian economies—with their strong export orientation, solid human capital base, and decades of extraordinary growth—can be expected to thrive in a politically and economically well-integrated environment, especially if this helps the region to better align with globalized markets and internationally accepted standards.
However, Ms. Akhtar noted that “weak institutions in East Asia have held back the pace of progress, especially in financial integration.”
Symposium finance panelist Manu Bhaskaran of the Centennial Group Inc., a private policy advisory group based in Washington DC, said that if other aspects of economic integration escalate, the demand for financial integration will increase and incentives will emerge for interested parties to push through any resistance to integration.
Mr. Bhaskaran noted that “even though the gains in economic welfare from greater integration are large, political elites do not appear to be willing to make the difficult decisions to forego some sovereignty and suffer the losses in some segments of the economy needed to promote greater integration.”
Chair of the finance panel, Peter Montagnon, of the Association of British Insurers, suggested there could be a significant role for institutional investors through greater integration of East Asia. “Maybe, in the end, it is pressure from them that could deliver more sophisticated markets,” he said.
Noting that East Asian governments could set about creating a climate in which such investors would become active, he said, “but it also means focusing on well-regulated, user-friendly, and transparent markets in which people can trade with confidence, not to mention high standards of corporate governance that will give investors a degree of trust in Asian corporations.”
Philip Turner of the Bank for International Settlements, said several Asian countries had established programs to nurture local bond markets, but the results had been disappointing. Despite a huge increase in issuance, market liquidity had not developed as much as had been hoped, and intra-Asian investment in Asian bonds had remained low.
Chairing a panel on trade, Financial Times World Trade Editor, Guy de Janquieres, asked whether bilateral and regional trade arrangements held the key to further economic integration in East Asia. “Or,” he said, “does progress really hinge instead on Chairing a panel on trade, Financial Times World Trade Editor, Guy de Janquieres, asked whether bilateral and regional trade arrangements held the key to further economic integration in East Asia. “Or,” he said, “does progress really hinge instead on
In his keynote address on infrastructure, ADB Vice-President Geert van der Linden said improved connectivity through better transport, energy, and telecommunications systems is vital to address high transaction costs. “It is all the more important in an environment of increasing trade liberalization,” he said.
He highlighted four areas of critical importance. “First, developing countries must find significant sources of revenue to meet the current and future demands for infrastructure services—estimated to be well over $300 billion over the next 5 years.”
“Second, infrastructure has to be made more accessible to the poor, particularly the rural poor.”
“Third, regional infrastructure development must move from an ad hoc, projectbased approach to a planned, programmatic approach that focuses on overall logistical systems to facilitate trade. Institutional arrangements must be developed to facilitate such an integrated approach to regional infrastructure development.” Mr. van der Linden noted examples of promising recent initiatives such as the ASEAN Power Grid and the Trans ASEAN Gas Pipeline.
The fourth issue of critical importance was that environmental costs must be contained.
Asia holds much hope and promise, but also many risks, Mr. van der Linden said. “Much like a house of cards, its foundations must be strengthened if recent success is to translate to lasting value,” he warned.
“Even if high growth rates continue and prosperity is equitably shared, the number of people living on less than $1 a day will still be around 150 million in 2015. But if growth slows and inequality grows, that number could well rise to almost 430 million.”
Mr. van der Linden said the “implications are clear—Asia must continue to grow rapidly, building on the progress of the last 2 decades. But it must grow in a manner that is sustainable so that a growing number of Asia’s poor will benefit.”
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