4 Jan 2017
ASEAN Connections: How Mega-regional Trade and Investment Initiatives in Asia Will Shape Business Strategy in ASEAN and Beyond
Asian economies have been some of globalisation’s biggest winners. From Japan’s post-war miracle to Singapore’s dazzling emergence as the hub city par excellence, South Korea’s export-led “miracle on the Han river” to Vietnam’s more recent and continuing economic success, access to global markets and capital under the US-led commercial and financial system has underpinned economic development in the region.
Yet the global order is changing. China surpassed Japan as the world’s second largest economy in 2010 and is expected to overtake the US in the coming years (in nominal GDP terms), although India has now picked up the mantle of the world’s fastest growing large economy. As a result, the centre of global economic gravity continues to shift back to the East where it had resided for centuries before the Industrial Revolution catapulted Western economies ahead of the rest. This fundamental “global shift” has profound implications for the global financial and commercial order.
At the same time, the multilateral trading system has stalled. The WTO has failed to progress any meaningful round of liberalisation since the completion of the Uruguay Round in 1994. A patchwork of bilateral and regional free trade agreements (FTAs) have emerged instead. In Asia this network of FTAs is referred to as the “noodle bowl”, a term that captures the complex web of agreements that in many cases fail to live up to expectations. The complexity and costs involved in navigating these myriad agreements are often identified as reasons why utilisation rates remain low. Although bilateral and regional FTAs may be easier to conclude than a multilateral agreement, they remain “sub-optimal”.
Beyond trade, the global financial crisis of 2008 which continues to reverberate around the world, placed the very fundamentals of the global financial architecture and western style market capitalism under a critical spotlight. China, with its own “variety of capitalism” is flexing its newly found economic muscles and demanding a greater role in setting the rules of the game. The inclusion of the renminbi (RMB) in the IMF’s benchmark Special Drawing Rights (SDR) currency basket, for example, demonstrates China’s growing importance to global finance while the Asian Infrastructure Investment Bank (AIIB), established and led by China, stands in direct competition to the existing order of the World Bank and the Asian Development Bank. A recent report from The Economist Intelligence Unit suggests that China’s new economic diplomacy may mark the beginning of the end of China’s engagement with the existing institutions of trade and investment governance.
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