Rules for trade and investment are key to understanding who will hold sway over fast-growing Southeast Asia.
The US, Japan and China would like to tie Asean, a group representing 10 of the region’s governments, to competing trade blocs. But Asean members have their own ideas.
Asean has a road map for a single market by 2015 dubbed the Asean Economic Community. It is unlikely to meet its own deadline, particularly for sticky issues such as foreign ownership investment caps, but has made strides towards lowering trade barriers. Given Asean represents 600 million people, this is no small thing.
About 75% of intra-Asean trade is now tariff free. Trade with other members generates 14.2% of the bloc’s GDP, including 6.3% with Japan and 5.5% with China.
FinanceAsia this month has selected the Asean companies it believes are spearheading this regional integration by trading and investing across borders within the bloc.
Such business champions are important if Asean is to cohere as a bloc that can control its own destiny. Without greater linkages, outside powers still find it relatively easy to pick off Asean member governments and drive their own agenda.
For example, Asean is increasingly reliant on trade flows with Japan. Just two days after the US Federal Reserve ended its programme of quantitative easing, the Bank of Japan stepped into the breach with a major expansion of its balance sheet. Japanese companies and banks are likely to redeploy part of this liquidity into Asean markets.
Trade with Asean’s second-biggest external trading partner China also continues to grow. Singaporean bank OCBC bought Hong Kong’s Wing Hang with the intention of intermediating more trade flows between China and Asean.
Asean can be a counterweight politically to Japan and China but will continue to be buffeted by ebbs and flows of finance from China and Japan. Southeast Asia’s governments can do more to harmonise policy and open doors to neighbouring companies and investment.
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