Integration spurs Asian economies

Integration spurs Asian economies

Zhu Qiwen, China Daily, Asia News Network, Beijing

As regional integration becomes more important in economic globalization, closer economic cooperation benefiting both China and its Asian neighbors is increasingly imperative.

The remarkable progress that the European Union and North American countries have achieved in promoting regional economic co-operation has served as a wake-up call to Asian countries, especially those who suffered bitterly from the 1997 Asian financial crisis, after decades of booming growth.

"It has become an Asian consensus that a framework is needed to offset pressures imposed by enhanced European and North American regional co-operation," said Tang Min, a senior economist with the Asia Development Bank.

A cooperative vehicle between the Association of Southeast Asian Nations (ASEAN) and China, Japan and South Korea has been discussed for the past few years as the key aspect to regional growth. But various economic and political reasons have prevented it from becoming reality.

But in a surprise move, a free trade zone between China and ASEAN has been called for by China in 2000 and agreed to last year by both sides for implementation within the next 10 years. "As an unprecedented plan of seeking common prosperity and development, it is worth trying out," said Ding Dou, a researcher with the School of International Studies at Peking University.

China and the ASEAN are now in the middle of negotiating their free-trade agreement, a move that will greatly enhance wider and deeper economic co-operation in East Asia. "Undoubtedly, China's robust economic growth and huge domestic market will contribute a lot to regional growth and stability," said Ding.

When the 1997 financial crisis swept across the Southeast and East Asia, China quickly became an anchor for Asian economies by firmly resisting tremendous devaluation pressure on its currency.

And its 7.3-percent gross domestic product (GDP) growth, typical for the Chinese economy, effectively made China a star performer as global economic prospects dimmed last year.

It is natural that many countries in Southeast Asia have looked to China for more cooperation.

Now China's trade volume amounts to more than 40 percent of its GDP, a ratio much higher than that of other major economies like the United States and Japan.

And the average inflow of foreign investment worth more than US$40 billion per year accounted for 12 to 14 percent of China's investment in recent years.

"Among all its external markets, the Asian market is the one that the Chinese economy relies most on," pointed out Tang.

That may seem incredible to many critics of Asian co- operation, given the fierce competition for U.S. and European markets between Asian exporters.

Nevertheless, statistics from the Asia Development Bank indicate that 57.7 percent of China's trade was conducted with other Asian economies.

China's entry into the World Trade Organization will certainly further integrate this huge market into the Asian economy as well as the world economy.

Besides substantial economic benefits, a free trade zone between China and ASEAN will also help cement the foundation for stability in East Asia, wrote Ma Yanbing in the Beijing-based quarterly, Peace and Development.

China's free trade zone initiative is based on its diplomatic and economic development needs, according to Ma, a researcher with the China Institute of Contemporary International Relations.

"The realization of a China-ASEAN free trade zone will exert far-reaching influence on Asia and the world's global political and economic situations," he noted.

It is widely believed that sound relations between China and its neighbors will allow the region to have a larger voice in the international arena.

To speed up regional cooperation, China has strengthened its links with other Asian economies through investment.

Chinese investment in the region remains modest in absolute terms, but is accelerating fast. It was estimated that in 1999, China invested $72 million in ASEAN countries. In 2000, that sum soared to $108 million, up by 50 percent.

Intensified financial co-operation is also a factor. "There is not much talk about Asian financial co-operation right now, but it definitely will become a hot topic in future," said Tang.

As large part of regional economic co-operation, financial cooperation has already been put on the agenda of many Asian countries. The controversial plan for an Asian Monetary Fund as a countermeasure to future financial crisis in this region, though aborted, was a positive response to the call of many Asian economies.

With a total foreign reserve worth about $1 trillion, Asian economies still have much to do to strengthen regional financial stability.

As preparation, a series of currency swap agreements have been signed between a number of Asian countries aimed at providing protection against financial crises.

The latest case is the yen-yuan swap deal sealed last week between China and Japan that requires each to support the other's currency with their own currency worth up to $3 billion when speculative attacks occur.

Economic globalization that brings more competition has made closer regional co-operation an urgent need for Asian economies.

"But due to different political systems and economic conditions, East Asia can hardly develop an institutionalized integration organization like the European Union and the North American Free Trade Area," said Ding, of Peking University.

"In line with their actual conditions, East Asian economies can develop flexible and open regional economic co-operation," suggested Ding.

That means that while boosting trade and investment within the region, Asian economies also deepen their participation in the global economy by diversifying export markets and foreign investment sources.