East Asia: financial cooperation requires regional awareness

This year marks the 10th anniversary of the Asian Financial Crisis, as well as the 10th anniversary of the East Asia 10+3 cooperation (the Association of Southeast Asian Nations, or ASEAN, plus China, Japan and the ROK). There is a link between the two events: the crisis gave rise to the 10+3 cooperation mechanism, while the East Asia cooperation grew out of the financial field. Though still far from being integrated, finance has proved to be the most fruitful area of East Asia cooperation. From the "Chiang Mai Initiative" of May 2000 to the decision to build a common "foreign exchange reserve" at the meeting of finance ministers from 13 East Asian countries in May 2007, cooperation has moved steadily forward.

The proposed "foreign exchange reserve" is a multilateral form of the "Chiang Mai Initiative". Accordingly, bilateral monetary agreements reached under the Initiative framework will be combined into a single agreement to build up public foreign exchange reserves to guard against serious financial risks. In this way countries can draw on their reserves to protect themselves if a financial disaster strikes.

Many East Asian nations were badly hit by the financial crisis a decade ago. Unable to pull themselves out of the crisis due to the absence of a regional cooperation mechanism, many affected countries had to ask for help from the International Monetary Fund (IMF), and to accept harsh terms on their loans. Some of them struggled for some time under the weight of these debts. To prevent the scenario from reoccurring, the construction of a "foreign exchange reserve" was suggested, which brings financial cooperation in the region to a new stage.

The process of East Asia financial cooperation reflects a constantly growing regional awareness. Based on the experience of Europe and other places, economic integration usually expands from trade, and monetary integration at a higher level occurs much later in the process. An "East Asia free trade area" was suggested many years ago, but little substantial follow-up action was taken. Conversely, monetary and financial integration, always deemed more difficult, has produced initial results. Financial cooperation comes before trade cooperation ¨C this is a distinct feature of the East Asian integration process.

The experiences of European integration show that fostering regional awareness and recognizing regional interests are important for success. Countries must put regional benefits above national interests before they can enjoy success and share in the benefits of cooperation. In East Asia, finance is the area of greatest common interest and therefore the area in which consensus is easiest to reach. Most countries in the region were affected in some way by the 1997 crisis and understand that national financial security cannot be separated from that of the whole region.

East Asia has natural conditions for economic integration. The region encompasses Japan, the world's second largest economy, China, the fastest developing economy, as well as a large number of emerging industrial economies and developing economies with lots of potential. The region also has a relatively unique hierarchical international labor division system, which makes economies comfortably complementary to one another.

Despite this, the economic integration process has been moving slowly, partly due to a lack of regional awareness. To cultivate such awareness, time and understanding are needed, and regional interests must be prioritized. Progress already made in the financial field will provide a good foundation for such efforts.

The author is Lu Jianren, deputy director of the Center for APEC and East Asian Cooperation, Chinese Academy of Social Sciences; translated by People's Daily Online.