NEW DEVELOPMENT TRENDS

E. Ya. ARAPOVA

Candidate of Economic Sciences

MGIMO (U) of the Russian Foreign Ministry

Keywords: East Asia, ASEAN, financial markets, investment, regional development, economic integration

World Bank experts predict that the group of East Asian States will grow by 7.1% in 2014 (at the time of writing, the year was still incomplete and its results are unknown), which will be mostly supported by the high growth rate of the Chinese economy (about 7.6%). Despite a slight slowdown in the economic growth of the region's countries compared to the average growth rate in 2009-2013 (at 8%), East Asia continues to maintain its position as the world leader in terms of regional development.

Of great interest is the answer to the question: what is the reason for this growth today?

East Asia has always followed its own export-oriented model of economic development, which for several decades has helped countries in the region to occupy leading positions in terms of the growth rate of their economies. As a result, the impact of the global financial crisis of 2008-2009 was relatively lower here than in other regions of the world.

First, there was some "postponement" of the negative impact of external factors. If for most developed countries of the West, negative trends were reflected in the statistics of 2008, then for Asia, 2009 was a turning point. This was partly due to the accumulation of a "safety cushion" in the form of significant international reserves, and partly due to the expansion of regional integration processes and the development of regional cooperation in the financial sector. Its goal was to increase regional financial stability and create mechanisms for rapid response to external threats. Second, Asian countries have generally managed to maintain "favorable external economic positions in the context of flexible exchange rates, significant international reserves and less dependence on short-term external financing"¹.

However, the crisis of 2008-2009 can still be considered a turning point for Asian countries. It was after the global financial and economic crisis that new trends in the strategy of economic growth and improving the level of well-being of their peoples were outlined here.

DIVERSIFICATION OF SOURCES OF GROWTH

First of all, new trends are reflected in the diversification of sources of economic growth. From a model driven by expanding foreign trade, Asian States are gradually shifting to rapidly accumulating investment and stimulating domestic demand.

It is too early to talk about a departure from the export-oriented model of economic development, which has been a characteristic feature of the Asian region for several decades and has provided Asian countries with a significant share of GDP growth. However, in recent years, there have been trends in the dynamics of foreign trade: its growth rate slowed down while outstripping imports, which led to a reduction in the trade surplus.

Association of Southeast Asian Nations (ASEAN)export growth rate* decreased from 18.31% in 2011 to 1.84% in 2013; import figures for the same period - from 21.5% to 3.22%². The dynamics of trade in services of the ASEAN countries turned out to be relatively more favorable: from 2009 to 2013, the total turnover of the Association's services increased by 58.5%, while the growth rate of trade in services remained slightly higher than the corresponding indicators in goods trade.

However, from 2010 to 2013, the growth rate of trade in services decreased from more than 20% to 6.86% for exports and 4.07% for imports.³ As a result of this imbalance, the trade surplus of the ASEAN member states decreased almost 9 - fold from more than $100 billion between 2010 and 2013. up to $11.91 billion.

A similar trend was also observed in ASEAN's trade with key regional partners. ASEAN's trade deficit with China reached $58 billion in 2013. compared to $13.4 billion. in 2010; with the Republic of Korea, it increased over the same period from $12 billion. to $28.44 billion; in relations with India, the surplus decreased from $17.18 billion. up to $13.6 billion.

The overall slowdown in the growth of ASEAN countries ' foreign trade in recent years has resulted, among other things, from a decline in the intensity of trade with other Asian countries.

* ASEAN member States include: Singapore, Malaysia, Indonesia, Thailand, the Philippines, Brunei, Laos, Myanmar, Cambodia, and Vietnam.

Table 1

ASEAN Trade and Investment relations with ASEAN+3 partners*

Compiled by the author on the basis of data from: Asian Economic Integration Monitor-April 2014. Mandaluyong City, Philippines: Asian Development Bank. 2014. P. 27.

This is primarily due to China's domestic economic policies: implementing programs to stimulate domestic demand, increasing government spending since mid - 2013, establishing a more competitive exchange rate of the yuan, and reducing domestic development imbalances.

According to American experts, the exchange rate of the Chinese yuan has remained artificially low for many years. When Congressmen Charles Schumer and Lindsey Graham introduced a bill in 2005 to impose a 27.5% tariff on Chinese goods, experts estimated that the yuan was undervalued by up to 40%. However, from 2005 to 2013, the yuan rose by 34% in nominal terms and by 42% in real terms.⁴ As a result, the IMF's 2013 report reclassified the Chinese currency to "moderately undervalued" by 5-10%, adjusted for inflation.

Against the background of a slowdown in trade, investment exchanges with partner countries in the region are becoming more active (see Table. 1), and growth factors are gradually moving from the public sector to the private sector.

While the share of intraregional trade in the ASEAN export structure increased by only 0.5 per cent between 2005 and 2012. The share of ASEAN in the total inflow of foreign direct investment increased almost twice: from 9.7% to 17.1%. Japan's share as an ASEAN trading partner decreased from 10.7% to 10%, while its share as an investment partner increased from 15.2% to 21.4%.

At the same time, in recent years, bilateral intergovernmental initiatives have been actively implemented in East Asia, mainly with the participation and initiative of Japan, aimed at stimulating mutual investment. In particular, in 2011, the monetary policy authorities of Japan and Thailand signed an agreement that the latter would open a credit line to Japanese companies operating in Thailand, secured by Japanese government bonds.

On July 26, 2013, the Central Bank of Japan announced a similar agreement with the monetary policy authorities of Singapore.⁵ The signing of the agreement is aimed, on the one hand, at providing Japanese corporations with financial resources in case of a lack of liquidity, and on the other hand, at expanding direct foreign investment of Japanese companies and banks in the Singapore economy.

Japan and Singapore can be considered regional leaders in terms of the degree of openness of national financial systems and the development of investment cooperation. Over the past 5 years, the volume of direct investment from Japan in Singapore's economy has increased by 56%, and Japan remains one of the key investors in the country6. In 2012, 29 Japanese companies registered a commercial presence in Singapore, while in 2008 there were only 6 ⁷ such companies. Many major Japanese multinational corporations( TNCs), such as Panasonic Corp. and Mitsui Chemicals Inc., moved key production functions under Singapore's jurisdiction ⁸.

Diversification of sources of growth is also reflected in a gradual movement towards creating an economic model determined by domestic demand. According to the IMF experts, the contribution of consumption to GDP growth in developing East Asian countries will grow to ^{2 percentage points in 2014, compared with 1.3 in 2013.9}

In Asian countries, there is a strong motivation to stimulate domestic consumption and increase the contribution of this component to GDP, especially in China. However, at the moment, the trend of expanding domestic demand is not very stable: according to data for 2013, the sources of growth in China's economy have shifted from domestic demand, which dominated in the first half of the year, in favor of net exports in the second half. Stable domestic demand remains in Japan.

China has committed to implementing reforms to " encourage innovation and increase productivity, curb mismanagement of investment, and increase household income and consumption." The package of reforms aimed at reorienting the economic system will include, first of all, the liberalization of the household registration system (hukou); inter-budget reform; financial liberalization;and opening up China's service sector to competition. ¹¹

CONVERGENCE OF FINANCIAL SYSTEMS

Although a significant number of reports and analytical reviews of the Asian Development Bank and the IMF are devoted to the study of the processes of expanding financial integration in the ASEAN+3 format, at the moment it is still too early to talk about the development of regional integration processes in the financial sector

* The ASEAN+3 format includes 10 ASEAN member States, as well as China, Japan and the Republic of Korea.

Table 2

ASEAN Financial Market Variation Coefficients+3

Compiled by the author on the basis of data from: Asia Regional Integration Center (Regional Integration Indicatior).

too early. However, in recent years there has been a steady trend towards convergence of national financial systems within the 13 ASEAN+3 countries.

Financial integration should be manifested primarily in the convergence of indicators of national equity and bond markets, as well as national credit markets. Currently, the coefficients of variation are characterized by average (0.4-0.65) or high (>0.65) levels, which indicates a large heterogeneity of the corresponding indicators of East Asian countries (see Table 2). At the same time, the sharp deterioration of the corresponding indicators in 2009 was due to the negative consequences of the global financial and economic crisis: the indicators increased significantly, although in in the pre-crisis years, there was a slight decline.

Nevertheless, a positive trend has been observed since 2010: the money market coefficient of variation decreased from 0.92 in 2009 to 0.61 in 2012, the bond market coefficient of variation decreased from 0.76 to 0.53 over the same period, and the credit market coefficient of variation decreased from 0.68 to 0.59, respectively.

Researchers at the University of California ranked ASEAN+3 countries in terms of financial development indicators, grouped under seven categories. ¹²:

- institutional environment;

- business environment;

- financial stability;

- banking services;

- non-bank financial services;

- financial markets;

- access to financial resources.

The leaders in most indicators are Hong Kong, Singapore and Japan. Singapore is the leader in terms of the level of development of the institutional environment and financial markets, while Hong Kong is the leader in terms of ease of access to financial resources. Japan occupies the third position in the overall regional rating system. In terms of access to financial resources, the quality of the business environment and the level of development of non-banking services, Japan is ahead of the Republic of Korea, and in terms of financial stability - Malaysia. Non-bank financial services are relatively well developed in China, compared with similar indicators in Hong Kong, Singapore and Japan. The least financially developed countries in the ASEAN+3 format are the Philippines, Indonesia and Vietnam.

The heterogeneity of the financial systems of the ASEAN+3 countries is also indicated by the correlation coefficients calculated according to the above seven criteria for financial development (see Table 3).

Indeed, there is considerable heterogeneity in financial development indicators within the ASEAN+3 format. As already noted,it is too early to talk about the development of full-fledged integration within the framework of ASEAN+3. However, if we consider the ASEAN States, especially the most developed member countries of the Association, which, in addition to Singapore, include Malaysia,

Table 3

Correlation coefficients of financial development indicators

Источник: Kaur I.N., Singh N. Financial Integration in East Asia: Past, Present and Possible Futures // University of California. 2013. P. 18.

Philippines, Thailand and Indonesia, we can conclude that the levels of development of national financial systems are gradually converging.

It is expected that the trend of convergence of national financial markets and increasing the degree of their integration across the region will continue in the future, primarily in the banking segment.

First, following the program of stimulating domestic demand, Asian governments will take measures aimed at expanding lending to both the consumer sector and the small and medium-sized business sector.

Second, in the financial markets of Asian countries, it is banks that play a dominant role as sources of capital. In particular, as of 2012, the share of bank lending in emerging Asia was 105% of GDP, and in developed Asia-up to 194%¹³.

At the same time, "Asian banks are more focused on traditional banking activities, such as deposits and consumer lending to households and companies, and are less dependent on lending to other banks and on the sale of investment products, such as swaps and other derivatives." ¹⁴ In recent years, there has been a gradual reduction in the gap between the levels of interest rates on loans and deposits, which reduces the profits of the banking sector and forces banks to expand their activities, primarily through investment, contributing to the further internationalization of their activities and forming a regional banking space.

The banking systems of Asian countries will follow the path of consolidation and complication of the tools and activities used, which was once followed by the developed countries of the West. This process will be accompanied by the development of measures to increase the stability of national financial systems and insure possible risks. Since 2009, many Asian countries have already adopted a number of measures aimed at limiting the accumulation of financial imbalances associated with capital inflows and the accumulation of unsecured loans. Macroeconomic policy measures, according to Zeti Akhtar Aziz, Governor of Bank Negara, the national central bank of Malaysia, included "restrictions on the maximum term of loans and adjustment of loan-to-collateral ratios for the purchase of real estate, tax measures such as an increase in the tax on real estate transactions and a revision of taxes on real estate gains" ¹⁵.

Thus, the trends of regional economic development of the Asian region in recent years are as follows::

- slowing of the growth rate of foreign trade;

- faster growth rates of imports compared to exports;

- a sharp reduction in the trade surplus, and with individual partners - the accumulation of deficits;

- forming national currency exchange rates on a more competitive basis, gradually moving away from using national currency rates as a manipulation tool to influence the state of the trade balance (first of all, this applies to China);

- increased investment exchange compared to increased trade flows;

- striving to overcome internal imbalances as a result of high savings rates, accumulation of export earnings and international reserves;

- formation of a model of economic growth determined by domestic demand, stimulating domestic consumption and expanding the private sector;

- convergence of national financial systems and acceleration of regional integration trends in the financial sector;

- expansion of banking activities, gradual consolidation and complication of financial instruments;

- development of measures aimed at improving the stability of national financial systems and countering external shocks.

* * *

In modern conditions, when the world economy is characterized by moderate economic growth, slowing world trade and increased volatility in the financial sector, Asian states are striving to be proactive, transform national economic development strategies in accordance with global challenges and look for new sources of improving competitiveness in the global market.

^{Aziz Z. A.} 1 Point of View. Asia's Resilience // Finance and Development. IMF. June 2014. P. 22.

² http://www.trademap.org/Product_SelCountry_TS.aspx

³ http://www.trademap.org/Country_SelService_TS.aspx

^{Moirison W., Labonte M.} 4 China's Currency Policy: An Analysis of the Economic Issues // Congressional Research Service. CRS Report for Congress. Prepared for Members and Committees of Congress. July 22. 2013. P. 1.

⁵ Establishment of an Arrangement for the Provision of Singapore Dollar Liquidity against Japanese Government Securities as Collateral. Bank of Japan. July, 2013 - https://www.boj.or.jp/en/announcements/release_2013/rel130726b.pdf

⁶ http://www.singstat.gov.sg/statistics/browse_by_theme/investment.html

⁷ Profile of S.E. Asian IP Network of Japanese Commerce and Industry (SEAIPJ). JETRO SEAIP Profile. March. 2012.

⁸ More Japanese firms relocating to Singapore // Japan Times. 14.08.2012.

⁹ Regional economic outlook. Asia and Pacific. International Monetary Fund. Washington DC. 2014. P. 6.

¹⁰ World Bank East Asia Pacific Economic Update. Preserving Stability and Promoting Growth. The World Bank. Washington DC. 2014. P. 2.

^{Dollar D.} 11 Sino Shift // Finance and Development. IMF. June 2014. P. 11.

^{Kaur I. N., Singh N.} 12 Financial Integration in East Asia: Past, Present and Possible Futures // University of California. 2013. P. 17 http://economics.ucsc.edu/research/downloads/Kaur_Singh_FinancialIntegration_Oct2013.pdf

^{Walsh J. P.} 13 The Future of Asian Finance // Finance and Development. IMF. June 2014. P. 19.

¹⁴ Ibidem.

^{Aziz Z. A.} 15 Op. cit.

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