Asias growing trade prowess

Economic growth in todays world has been dubbed as being two pronged; growth in the emerging economies, and the relatively slower pace of economic growth in the developed world. The growing power of developing Asia has meant that the region is beginning to find strength in its own regional partners, and the Asian Development Banks Asian Economic Integration Monitor 2012 highlights this progress in regional cooperation and integration amongst Asian countries. The expanding scope of Asian markets has meant that regional integration is largely market-driven, but is uneven across regions, with South Asia faring quite worse in terms of regional integration. However, intraregional trade within Asia has grown faster than trade with the US and EU, largely reflective of the slowing growth in these more developed economies. "By export share, in January 2012 the EU and the US accounted for 25.3 percent of Asias trade-down 4.9 percentage points from 30.2 percent in 2007. This was partly offset by a 2.3 percentage point rise in the share of exports to Latin America, Africa and the Middle East; and a 1.5 percentage point rise in the share of intraregional exports," said the ADB. Most of the increase in inter-regional trade in Asia has come from trade in intermediate goods, which is reflective of developing supply chain and production networks, i.e., fragmentation of the production process into distinct chunks located in different countries to minimise costs. So, whats behind the greater trade integration in Asia? To begin with, improving economic conditions in Asian economies, diversity in labour supply conditions and wages, and development of efficient communications, transport and logistics systems account for this growth in trade amongst Asian countries. Besides this, Chinas growing clout as a low-cost assembly centre and manufacturing hub also deserves credit for growing inter-regional trade in Asia. "The share of Asias primary and intermediate goods exports to the PRC almost doubled-from 6 percent in 1998 to about 11 percent in 2010. In dollar terms, this low is now larger than Asias exports of consumption goods to the US and EU combined," said the Asian Economic Integration Monitor. But, while the region can boast of growing trade integration, financial integration continues to lag behind. While intraregional investment in equity markets remains higher than that in debt markets, cross-border investments in debt securities showed a more persistent growth. The amounts remain low in absolute terms, however. The ADB caveats against the risk of a contagion due to financial integration, in case of a crisis arising from exogenous shocks or excessive capital flows or asset bubbles. Therefore, efforts need to be taken to ensure that these risks are minimised. Overall, the theme of the Asian Economic Integration Monitor highlights the growing economic importance of Asia as a region, especially in terms of growing inter-regional trade.