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A recent Discussion Paper by ADBI Dean Masahiro Kawai, “Evolving Economic Architecture in East Asia,” examines how East Asia’s economic architecture has been evolving over the last ten years and how it will shape itself in the future.

One of the most significant outcomes of the Asian financial crisis of 1997–98 has been the emergence of economic regionalism in East Asia. The crisis prompted the regional economies to realize the importance of strengthening regional self-help mechanisms in a concerted way. For example, the Association of Southeast Asian Nations (ASEAN)+3 countries—comprising the ten ASEAN member countries, the People’s Republic of China (PRC), Japan, and Korea—have begun to undertake initiatives for regional economic surveillance, a regional liquidity support facility, and Asian bond market development. Regional financial cooperation has stimulated regional trade and investment cooperation in the form of numerous free trade agreements (FTAs).

Several groups have been set up to facilitate East Asian economic regionalism. In the financial and monetary area, the ASEAN+3 finance ministers are active in pursuing financial cooperation while the Executives’ Meeting of East Asia-Pacific Central Banks (EMEAP) governors—comprising nine East Asian economies and two Oceanic countries—have played a critical role. In the trade and investment area, ASEAN has been the de facto hub while ASEAN+3 and the East Asia Summit (or ASEAN+6—including the ASEAN+3 countries, Australia, India, and New Zealand) are emerging as important larger groups. East Asia also works with North America through the Asia-Pacific Economic Cooperation (APEC) and with Europe through the Asia-Europe Meeting (ASEM) on economic and financial issues. Hence, it is important to explore how East Asian economic regionalism might evolve over time and how it might reshape the region’s relationship with North America and Europe.

The paper argues that East Asia can use its economic regionalism as an engine of deeper global integration. To make this possible, the region will have to address several challenges:

1. Regional trade authorities need to consolidate multiple, overlapping FTAs into a single East Asian agreement.
2. The regional economies must make greater efforts to strengthen regional financial cooperation—the reserve pooling arrangement (Chiang Mai Initiative [CMI]), regional economic surveillance (Economic Review and Policy Dialogue [ERPD]), and Asian Bond Markets Initiative (ABMI) under ASEAN+3.
3. The regional financial authorities need to strengthen exchange rate policy coordination—starting with the joint monitoring of regional exchange rates based on an Asian Currency Unit (ACU) index and the adoption of a currency basket arrangement based on the G3- plus currencies.
4. Although various economic groups existing in East Asia will continue to play their own roles, whatever regional economic architecture will emerge out of this complexity, the political economy dynamics in East Asia will continue to require an integrated ASEAN as a hub for East Asian economic cooperation.

Download Discussion Paper No. 84 for free.