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Integration key to future Asian growth

By Yan Yang (China Daily)
Updated: 2006-04-24 05:25

BOAO, Hainan Province: Asian countries should take action to enhance integration in order to maintain the current growth momentum, according to leaders and experts addressing the Boao Forum of Asia yesterday.

The Japanese Economy, Trade and Industry Minister Toshihiro Nikai promoted his idea of a region-wide free trade agreement (FTA).

"Japan, the 10-member Association of Southeast Asian Nations (ASEAN), China, South Korea, India, Australia and New Zealand should consider launching regional FTA talks in 2008," he said. These 16 nations make up the East Asian Summit bloc (EAS) formed in Kuala Lumpur in December last year.

He said there should be a new economic framework to strengthen current bilateral free-trade agreements, saying they should involve not only tariff reductions, but also investment, services and rules on intellectual property.

George Yeo, Singaporean minister for foreign affairs, said Nikai's proposal was interesting and progressive.

"Although it is not an achievable goal in the short term, an EAS FTA by the year 2020 can be envisaged."

He said the region is likely to become a major driver of the global economy some time in the first half of this century.

EAS countries account for half the world's population and have a combined GDP of some US$9 trillion, compared to the US GDP of US$12.4 trillion and the EU GDP of US$13.3 trillion. Experts say that in 20 to 30 years' time, the combined GDP of the EAS countries will be significantly greater than that of the United States or the European Union.

Donald Tsang, chief executive of the Hong Kong Special Administrative Region, said for improved financial integration in the region, immediate action should be taken.

The current financial arrangements lag behind other forms of integration in the region, he said.

"We need not arrive at a consensus now on monetary union or Asian Currency Unit as the final goal. There are areas of financial integration well worth pursuing right now," he said.

These measures could include linking financial infrastructures across jurisdictions, the harmonization of financial standards within the region and the promotion of greater cross-boundary capital flows, according to Tsang.

China's economy

China does not need 9.5 per cent growth to underwrite its commitment to reform, as a 7.5 per cent will just do fine, said Stephen Roach, chief economist with Morgan Stanley.

This is because the Chinese economy is in need of rebalancing, he added.

"China's senior leadership gets it while many outside the country do not," said Roach, speaking at the Boao Forum.

China's rebalancing imperatives are obvious, as the economy has become far too reliant on exports and fixed investment. Years of rapid export growth have already led to serious trade frictions and heightened risks of protectionism.

The rebalancing efforts by the Chinese Government have been envisioned in the 11th Five-Year Plan (2006-10) and three important aspects of rebalancing are stressed, Roach said.

The first is the moderation of the overall growth objective. The plan calls for 7.5 per cent average real GDP growth through 2010, a marked downshift from the 9.5 per cent average pace of the preceding 25 years.

"This should not be viewed as a worrisome shortfall but instead as more of an effort to raise the quality of Chinese growth."

Another aspect is the government's intention to rebalance the mix of GDP growth over the next five years, stressing the need to boost both the consumption and services shares of Chinese GDP. Financial reforms are the third key aspect of the strategy.

However, many outside China do not get the message, according to the economist.

Most foreign politicians especially those in the US believe that a large and swift currency revaluation should be central to any Chinese rebalancing strategy.

With financial sector reforms still in the early stages, China has stressed that large currency adjustments could potentially be quite destabilizing. These concerns are well founded, he said.

The rebalancing efforts will not only enable China to deal more effectively with both internal and external imbalances, but it also provides China with the opportunity to turn its attention to the critically important quality dimension of the growth experience, according to Roach.

(China Daily 04/24/2006 page2)