The Impact of Global Credit Crisis
on Asia’s Economic Integration
Virot Ali
5 Questions
 What is Regionalism?
 What was the impact of the 2007 economic crisis
to East Asian economies?
 Why did the East Asian economies such as China
and ASEAN resort to deeper integration as a
response to the global financial crisis?
 Discuss the shortcomings that may hinder the
evolution towards tighter integration in East Asia?
 In your opinion, what are the solution to the
problem?
Regionalism
 Large Market and Trading Bloc Strategy (Palan,
2001)
 Can we suggest that what we’re seeing in East
Asia a Large Market Strategy?
Impact of Global Financial
Crisis (2007-2008)
 Financial Flow?
 Investments?
 Declining Exports?
Growth in East Asia (2009
onwards)
 Industrial Production: i.e. automobile
industry/Automobile sales in China
 Capacity Utilization: i.e. Thailand’s capacity
utilization in vehicles, electronics and chemicals
 Exports: exports of China driven by demand
outside East Asia; while Indonesia, Malaysia,
Thailand and the Philippines exports were driven
by regional demand; in 2009 China overtook
Germany as the world’s leading exporter
Growth in East Asia (2009
onwards)
 Capital Inflow; flows to China have surged.
However, nonresident purchases of equities and
government debt securities have increased. By
contrast, inflows of foreign direct investment
remain subdued and cross-border bank lending
is only bottoming out. Local currency issuance
has been the key tool to absorb liquidity.
 Investing abroad; for example, the $25 billion lent
by China Development Bank to oil companies
Rosneft and Transneft of Russia, and the $10
billion to the oil company Petrobras of Brazil, both
to be repaid by oil shipments to China National
Petroleum Company.
Some Problems(2009)
 Crisis slowed the pace of poverty reduction in the
region. Philippines have increased the poverty
rate by as much as 2 percent.
 Changes in employment patterns; data suggests
substantial movements out of occupations with
relative high wages to ones with lower wages
Challenges
 Fiscal Stimulus!: Fiscal easing helped limit the
slowdown in economic growth across East Asia
which, averaged 2 percent of GDP in 2009.
 Government led investments; China
government-led investment was as much as 6
percent of GDP.
 Limit risks of asset price bubbles and overheating.
The Chinese government, as a result, is limiting
additional stimulus and projecting real GDP
growth of 8 percent in 2010.
Challenges
 Inflation; Signs of rising inflation after months of
tranquility and robust economic recovery have
led the monetary authorities in most countries in
East Asia to begin tightening monetary policy.
China’s monetary policy has led to strong credit
growth in 2008 that boosted the stock of
domestic credit to the highest levels in the region
of about 140 percent of GDP. China’s central
bank increased reserve requirements twice this
year and is implementing a smaller quota level
for bank lending aimed at slowing credit growth
to 18 percent this year from 30 percent in 2009
Challenges
 Exchange Rates: Exchange rates in Indonesia,
Thailand, Malaysia and Philippines have all
recovered to their pre-crisis levels.
Structural Reform?
 East Asia is poised to receive a larger share
of the projected increase in global capital
flows. East Asia received a fourth of global
private capital flows in 2007 compared with
nearly half for Europe and Central Asia.
 Despite a weaker global economy, East Asia still
has the capability to grow strongly over the
medium term. But this will not be easy to achieve
and will not be automatic. Strong and inclusive
growth will require renewed vigor in
implementing key structural reforms in countries
and at the regional level.
Structural Reform?
 China: China’s rapid capital-intensive, exportoriented growth has been spectacularly
successful. But the global markets it relied on will
be weaker in the near future. The existing pattern
of growth is energy- and natural resourceintensive, environmentally unsustainable, and
does not create enough urban jobs.
Structural Reform?
 Middle Income Countries: It is hard to
overestimate the role dynamic manufacturing
sectors have played in supporting economic
growth in the region’s middle-income countries.
For decades, the region has been the principal
destination of large multinationals that invested in
low value-added assembly production facilities,
linking them in regional and global production
networks. New policies are required to escape
from the “crowded middle” of industrial
development and break into knowledge- and
skill- intensive sectors.
Structural Reform
 Low Income Countries i.e. Lao, Vietnam,
Cambodia: rising labor costs in China, improving
regional transport links, and the rapid increase in
the variety of “tasks” away from vertical
integration has opened the potential for low
income countries to break into manufacturing
and become part of regional and global
production chains.
Where is Regionalism?
 Deeper Regional Integration: Is the “institution”
the real problem?
 Intra-regional trade has risen fast, as an illustration
of the advance of market-driven integration.
Intra-regional trade accounts for 55-60 percent
of total external trade of the East Asian countries,
driven by intra-industry trade within regional and
global production networks
 Trade facilitation: the logistics costs of
transporting a container from Bangkok or Jakarta
to Los Angeles is twice that of shipping it from
Shanghai or Seoul.
Where is Regionalism?
 Contrary to expectations, barriers to foreign
direct investment in East Asia are the highest in
the world
 The benefits from integrating trade in services
and addressing technical barriers to trade
cannot be underestimated. They are likely to be
many times those from reducing border barriers.
For example, static gains for developing East Asia
and Korea from services liberalization are
estimated at about $270 billion by 2015.
Where is Regionalism?
 Developing East Asia is financially globalised but
that less progress has been made towards
financial integration within the region.
Specifically, bond and equity markets in
developing East Asia are weakly integrated,
because of poor links between the financial
infrastructure of countries in the region (such as
payment, clearing and settlement), absence of
harmonized standards, and unnecessary
restrictions on access of foreign financial
intermediaries to domestic financial markets.
Any other things you’d like
to add?
 Comments: Q & A