Asia walks to beat of economic integration
By Zhu Qiwen (China Daily)
Updated: 2005-04-23 06:01

The ongoing emergence of Asia in the world economy is being fuelled to a large degree by its expanding intra-regional trade, according to the Annual Report 2005 released at the Boao Forum for Asia (BFA) in South China's Hainan Province on Friday.

Altogether, Asian economies accounted for 38 per cent of world output in 2003.

If they maintain their relatively strong performance compared to the rest of the world at the average annual growth rates achieved during the past decade, it can be expected that all of Asia will contribute a major part to world output, the report predicted.

The report, the first of its kind, was a result of collaboration between the BFA and the World Bank.

"An interesting conclusion of the report is that free trade has become a major driving force behind economic integration in Asia," said Long Yongtu, secretary general of the BFA. "But the more important one is that intra-regional trade in Asia is increasing rapidly."

East Asian intra-regional trade grew even more rapidly than its global trade - its share of intra-regional trade in world trade trippled to 6.5 per cent from 1985 to 2001.

There were three driving forces behind the rise in intra-regional trade, it said.

First, besides the regions relative share of world trade and the proximity of its trading partners, the impressive expansion of intra-regional trade can be explained by the growing complementarity of the region's export and import countries.

To some extent, the rise of national incomes across the group helped intertwine the structures of production and consumption. Consequently, East Asian exports matched more closely regional imports.

Such changes in the countries' trade profiles have allowed them to take advantage of trade opportunities in other Asian markets.

Second, a major factor contributing to the expansion of intra-Asian trade and the region's share of the global trading market was the improvement in the competitiveness of export countries, said the report.

According to calculations based on data from the United Nations, East Asian countries considerably sharpened their competitive edges from 1985 to 2001, which accounted for 38 per cent of the increase in regional trade.

Product diversity was responsible for about 8 per cent of the increase, while demand growth in East Asia accounted for the remaining 54 per cent growth in regional trade.

"Yet, the growth of Asia's intra-trade has not come at the cost of trade with other economies around the world," said Long. "Because the overall trade volume in Asia has also soared."

A third factor explaining the rapid regional trade integration was the increasing role of foreign direct investment (FDI), according to the report.

"Contrary to the traditional view that FDI and trade can neutralize each other, growth of trade is consistent with that of FDI, particularly in China," said Long.

Presently, foreign-funded enterprises contribute more than 50 per cent to China's trade volume.

And that flow of FDI into the country has offered enormous opportunities to other nations to expand their exports to China, said Bert Hofman, chief economist of the Beijing Office of the World Bank. "But the report does not only paint a happy picture."

It pointed out that the growth in Asia's share of world trade had not been even across the region over the past 20 years.

"Obstacles that hinder Asia's economic integration mainly include the different development levels of Asian nations, historical problems between some of them, and the diversity of their cultures and religions," said Long.

(China Daily 04/23/2005 page2)

Close