Prospects for Regional Expansion and Co-operation: A Special Series of Financial Times Reports, Analysis and Comment

By Financial Times, July 2005

This report examines the trends of growth and integration within the region and the challenges confronting the further development of cross-border trade, finance and investment.

Drawing on the FT’s global network of specialist reporters and commentators, it assesses the role of market forces that have so far shaped the expansion of the Asia Pacific economies and the limits and obstacles these forces face.

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Asia’s recent record of robust growth has been driven by trade and cross-border investment. In particular, China’s rise, with total trade last year surpassing US$ 1 trillion, has provided a powerful stimulus for regional expansion. But it is the nature of trade flows as much as their scale that is shaping economic and financial relationships and prospects. The traditional pattern of trade – with exports heading to the US and Europe – has increasingly been offset by the rise of intra-Asian trade, which has climbed to about 40 per cent of the total, about double the proportion of the 1980s.

While much of this trade involves the production of goods still ultimately destined for the US and Europe, it reflects an increased division of labour, specialisation and integration within the region. Among the bigger economies, it underlines some fundamental shifts in economic relations. Last year, for instance, Greater China overtook the US as Japan’s largest trading partner. Trade between China and India doubled in 2004 to US$13bn.

As with trade, so with investment. Cross-border mergers and acquisitions have risen steadily in the region, while Asian companies have been busy building new manufacturing sites in neighbouring economies. Market-led economic integration seems set to continue. But there are obstacles and complications. Political strains may slow the pace of co-operation. A recent survey by the Japan External Trade Organisation (Jetro), for instance, found that three in ten Japanese companies operating in China are reassessing expansion plans following April’s anti-Japanese demonstrations.

A series of bilateral trade agreements, while liberalising certain sectors, has created a complex series of tariffs and quotas. And while parts of the financial infrastructure required to create deeper and more robust capital markets have been put in place, visions of a regional bond market and more efficient ways of channelling regional savings into regional investments remain distant.

This report examines the trends of growth and integration within the region and
the challenges confronting the further development of cross-border trade, finance
and investment. Drawing on the FT’s global network of specialist reporters and commentators, it assesses the role of market forces that have so far shaped the expansion of the Asia Pacific economies and the limits and obstacles these forces face.

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