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.