The leaders of the
Association of Southeast Asian Nations and Japan, China and South Korea
(ASEAN-plus-3) announced in December 2005 their determination to realize the
East Asian Community.
EAC
has remained a dream so far because of the complexities of East Asia,
particularly the mutual distrust and difficult emotional state between Japan
and China. However, a fairly promising path has surfaced for realizing EAC
through financial cooperation by ASEAN-plus-3.
This
process has already reached the midway point. A December 2011 joint financial
agreement by the prime ministers of Japan and China is expected to accelerate
the process. They agreed on two points:
•
To develop financial markets in Japan and China so that Japan-China trade can
be settled by the Japanese yen or the Chinese renminbi instead of by the
dollar.
On
June 1, interbank markets for direct trading between the yen and the Chinese
yuan opened in Tokyo and Shanghai.
•
To accelerate financial cooperation among ASEAN-plus-3 members.
In
the face of the European sovereign debt crisis, the two countries are
strengthening financial cooperation to help maintain economic stability in East
Asia.
Zhang
Ming, economist at the Chinese Academy of Social Sciences, noted that financial
cooperation in East Asia has "crisis-driven characteristics" of making
progress when a serious crisis forces shelving temporarily political or
historical problems between the two countries.
The
ASEAN-plus-3 summit started in 1997 at the height of the Asian financial
crisis. ASEAN-plus-3 founded the Chiang Mai Initiative (CMI), a currency swap
arrangement to cope with emergencies and then increased its size substantially
in the course of 10 years. To strengthen the cooperation framework, finance
ministers' meetings, acting finance ministers' meetings and task force meetings
have been routinized. The ASEAN-plus-3 Macroeconomic Research Office (AMRO) was
created in 2011.
Takeshi
Kurihara, director of the Regional Financial Cooperation Division of the
Finance Ministry, who has taken part in that process, noted at the 2011 annual
conference of the Chinese Society of World Economics that an agreement on
deeper financial cooperation is feasible among East Asian countries, though it
will take a long time due to differences in political systems and stages of
economic development. He said the past 10 years were for founding and
organizing the CMI, and that the next 10 years would be for maturing it.
Now,
ASEAN-plus-3 once again is facing a serious crisis. Vice Minister of Finance
for International Affairs Takehiko Nakao said in a lecture at Peking University
in March: "Our experience at the time of Lehman crisis (fall 2008) and the
latest euro crisis shows that, in such crises, interbank funding markets can
become clogged and U.S. dollar liquidity can drain very rapidly. We must avoid
situations where smooth financing for trade and investment in Asia is hindered
and the real economy is negatively impacted just because of difficulties in
U.S. dollar liquidity. We need to work on promoting the use of our own
currencies in the region."
AMRO
Director Wei Benhua said his office would play its part to help safeguard
ASEAN-plus-3 from global uncertainties and to contribute to the region's
stability, growth and prosperity. Japan and China are working together on
upgrading their financial cooperation to a level that secures the stability of
East Asian economies
China
made up for its plummeting exports in the wake of the 2008 Lehman Brothers
crisis by implementing a 4 trillion yuan fiscal stimulus package. However, it
is essential for China to move from the export-oriented growth model to a new
growth model in which exports, consumption and investment are better balanced.
This
process requires difficult structural reforms of the Chinese economy and,
therefore, much time. Fortunately the expansion of Asia's middle-income
population offers new growth opportunities for all of Asia. As Chinese Vice
Premier Li Keqiang said at the Boao Forum for Asia on April 2, China has no
alternative except to grow together with other Asian nations. Japan also is
seeking to take advantage of Asia's growth.
A
stable financial environment is the precondition for East Asia to grow as a
whole. The CMI currency swap arrangement for emergencies does not suffice. East
Asia needs more stable exchange rates as well. Although the ASEAN-plus-3 summit
agreed in 2005 to speed up research on a mechanism for tightly harmonizing
regional exchange rates, little progress has been made. That's because no
nation is prepared to have its economic policy sovereignty curtailed through
exchange rate coordination.
A
proposal by the Japan Business Federation for stabilizing Asian currencies and
creating an East Asian economic community reflects the basic economic needs of
the region. We have seen how volatile exchange rates can hollow out a nation's
industries. Eventually ASEAN-plus-3 will be forced into a financial cooperation
aimed at stabilizing exchange rates of regional currencies, and AMRO will
naturally become the venue for needed policy discussions.
Several
frameworks for economic cooperation exist in East Asia. ASEAN-plus-3 has been
concerned from the beginning with financial cooperation. ASEAN-plus-6 was
formed by inviting Australia, India and New Zealand at the initiative of Japan.
In 2010, ASEAN invited the U.S. and Russia to form ASEAN-plus-8.
The
United States is promoting the Transpacific Partnership free trade zone for
political and geopolitical motives. The background of each grouping's inception
decides its character. ASEAN-plus-3 is the only framework with a decade of
financial cooperation; as such, it could evolve to EAC. After all, exchange-rate
coordination is its necessary component.
European
nations institutionalized the ideal of peace in the European Economic
Community, which evolved into the European Community and finally into the
European Union.
In
East Asia, de facto economic integration as a result of private economic
activities came into being first. The prospect of an institutionalized
community has not emerged due to different levels of economic development,
differing political philosophies and a difficult security environment.
A
realistic approach to EAC would be a so-called functional approach as proposed
by Japan's Ministry of Foreign Affairs. It calls for first deepening functional
cooperation in various areas as preliminary steps in the framework of
ASEAN-plus-3.
Cooperation
in the financial field can pave the way for eventual formation of an EAC — no
matter what it may be called. Then, East Asia will have attained a framework of
peace similar to that of the EU.
Mamoru
Ishida is advisor to Itochu Corp. He is also visiting professor at China's
University of International Business and Economics and at Beijing City
University.
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