Capital Market Reform in Asia

ADBI and the Organisation for Economic Cooperation and Development (OECD) held their ninth roundtable on capital market reform in Asia, entitled Ten Years after the Financial Crisis: Prospects towards the Future, on 26–27 February 2008 at ADBI. The series started in 1999 as a forum for discussion on issues related to capital market reform in Asia. The opening remarks were given by Masahiro Kawai (Dean, ADBI), Adrian Blundell-Wignall (Deputy Director, Directorate for Financial and Enterprise Affairs, OECD), and Andrew Sheng (Chief Adviser, China Banking Regulatory Commission). About 60 participants representing capital market authorities, ministries of finance, central banks and monetary authorities, and the private sector from selected OECD and East Asian countries participated.

The participants discussed the recent development of Asian capital markets, best practices in capital market regulation and corporate governance, progress of regional initiatives for capital market development and integration, the roles of capital markets in supporting public–private partnerships in infrastructure investment, and the challenges of mitigating financial market turbulence.

Significant progress has been made on capital market reforms, including adoption of international standards and market practices, adoption of national capital market master plans, and the streamlining of regulatory infrastructure to enhance surveillance and enforcement.

Bond markets in emerging East Asia have advanced significantly with total local currency bonds outstanding expanding from US$400 billion in 1997 to US$3 trillion at end-June 2007. During the same period, the share of corporate bonds rose from 28% to 41% of total local currency bonds. East Asian equity markets also expanded substantially with their market capitalization increasing from about US$840 billion in 1997 to US$4.7 trillion in 2006 with initial public offerings reaching US$66 billion in 2006. Capital market development has also benefited from regional initiatives such as the (ASEAN+3) Asian Bond Markets Initiative and the Interlinked ASEAN Security Market Initiative.

Infrastructure investment needs for Asia and the Pacific were estimated at US$228–600 billion a year, with a financing gap of US$180–200 billion. With limited fiscal space, filling this financing gap would require an increase in private sector investment through public–private partnerships. Capital market can support public–private partnerships by facilitating access to financing by private sector investors, including through infrastructure funds.

Despite significant advances in financial and capital market development, the United States subprime crisis highlighted the remaining need for (i) better understanding and monitoring of the risks involved in the securitization process, (ii) greater transparency and disclosure, (iii) better risk assessment/management by financial institutions, and (iv) closer coordination among policymakers.