Shifting relations between Asian countries and the changing global economy mean that Asia needs to strengthen its economic cooperation, the Asian Development Bank says in its latest "Asian Economic Integration Monitor".
“Asia needs stronger cooperation now more than ever,” Iwan J Azis, head of the ADB’s Office of Regional Economic Integration, said in commenting on the semi-annual review.
“Regional trade and financial integration have ratcheted up over the past decade and closer cooperation is needed to counter geopolitical risks, while surveillance and financial safety nets can address contagion,” he added.
Asia’s intra-regional trade share has risen to about 54 per cent in recent years and into early 2013, with trade between sub-regions rising, particularly for Central Asia as well as the Pacific.
Asia-Pacific’s trade share with other emerging markets outside the region continues to rise, while the trade share with the US and Japan continues to decline, according to the report.
Financial integration also continues to deepen, with an increase in cross-border equity and debt holdings and foreign direct investment.
Intra-regional bank credit flows – particularly from Japan and Australia to Asian countries – are emerging as an important source of stable external financing, said the ADB.
Southeast Asian nations, meanwhile, are attracting more foreign direct investment from within the region and from East Asia, strengthening production networks as the region gears up for the establishment of the Asean Economic Community next year.
For example, businesses from Japan, the biggest foreign investor in Southeast Asia, are increasingly shifting their production chains to the region.
The report shows that with the economy of China growing – and driven by domestic shocks – economic growth in Japan, South Korea and Asean is increasingly correlated to China.
As well as closer forms of economic cooperation, the region urgently needs to improve its insurance and other disaster-risk financing to address the high human and economic toll of floods, droughts and other increasingly common natural disasters that have cross-border impacts, said the ADB.
Asia and the Pacific is more vulnerable to natural hazards than any other region in the world, with financial costs alone totalling about US$53 billion (Bt1.71 trillion) annually over the last 20 years.
However, last year only 7.6 per cent of those economic losses were insured, so costs are threatening to outstrip governments’ ability to finance recovery. Long-term damage to infrastructure, businesses, farms, and homes can push many back into poverty.
Key priorities for developing disaster-risk financing markets and strengthening financial resilience include business continuity planning, enhanced technical and institutional capabilities, and better coordination among public authorities, the ADB said in its report.