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The Boao Forum for Asia

Progress of Asian Economic IntegrationAnnual Report 2012

对外经济贸易大学出版社

中国·北京

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Table of ContentsACRONYMS ……………………………………………………………………………………………VIII

ACKNOWLEDGEMENTS ……………………………………………………………………………… IX

FOREWORD …………………………………………………………………………………………… X

LIST OF CONTRIBUTORS ……………………………………………………………………………… XII

Chapter 1 Important Events of the Year and Their Impacts ……………………………………… 1

1.1 The Impacts of Japan’s Earthquake and Radioactive Leakage on World Supply Chains ………………1

1.2 The Middle East Upheaval and Its Impact on the Asian Economies ……………………………………6

1.3 The Debt Crisis in the US and Europe ……………………………………………………………… 10

Chapter 2 Foreign Trade Integration in Asia ……………………………………………………… 25

2.1 Recent Trends in Asian Trade ………………………………………………………………………… 25

2.2 Trends of Trade in Asia: Strong Intra-regional Flows ………………………………………………… 26

2.3 Trade Dependence among the TPP Members ……………………………………………………… 30

2.4 New Directions for China’s Imports ………………………………………………………………… 34

2.5 Higher Interdependence among Asian Neighbors ………………………………………………… 45

Chapter 3 Tourism and Trade in Services …………………………………………………………… 49

3.1 Features of Asian Tourism …………………………………………………………………………… 49

3.2 Asian Tourism: Destinations and Sources …………………………………………………………… 53

3.3 Liberalization of Services in the Asia-Paci� c RTAs …………………………………………………… 58

Chapter 4 Financial Transformation and Development in Asia ………………………………… 67

4.1 Equity Market Synchronization ……………………………………………………………………… 67

4.2 The Progress of the RMB toward an International Currency ………………………………………… 74

Chapter 5 Factory Asia Phenomenon ……………………………………………………………… 79

5.1 Development of the Asian Production Network …………………………………………………… 79

5.2 The Evolving Role of Individual Economies and the Size of the Factory …………………………… 82

5.3 Interdependence of Factory Asia …………………………………………………………………… 84

Appendix Chronological Dates of Economic Integration Agreements in Asia ………………… 87

REFERENCES ………………………………………………………………………………………… 101

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LIST OF TABLES

Table 1.1 Changes in Japan’s Exports Following the Earthquake, by Items, 2011 ………………………4

Table 1.2 Destination of Japan's Electronic Component Exports, 2010 …………………………………5

Table 1.3 Changes in Japan’s Exports after the Quake, Jan.-Apr. 2011 …………………………………5

Table 1.4 Basic Data on Some Arab Countries, 2009-2011 ………………………………………………7

Table 1.5 Developing Asia’s Exports to Its Partner Economies, 2009-Sept.2011 …………………………8

Table 1.6 Developing Asia’s Imports from Its Partner Economies, 2009-Sept.2011 ……………………9

Table 1.7 E� ect of the Upheavals on the Economies of China and East Asia ………………………… 10

Table 1.8 Primary Origins and Developments toward the Sovereign Debt Crisis …………………… 19

Table 2.1 Growth Rates of Merchandise Trade, 2005-2010 …………………………………………… 26

Table 2.2 Bilateral Trade between Selected Economies in Asia and Other Regions from January to

August, 2011 ……………………………………………………………………………… 27

Table 2.3 Top 5 Asian Economies, Merchandise Trade in 2010 ……………………………………… 27

Table 2.4 Top 5 Asian Exporters of Auto Products, 2010 …………………………………………… 29

Table 2.5 Major Asian Exporters of Textiles, 2010 …………………………………………………… 29

Table 2.6 The Development of TPP ………………………………………………………………… 31

Table 2.7 FTA Agreement Signed among TPP Members and Potential Members …………………… 32

Table 2.8 Export among TPP Members and Other Major Economies, 2010 ………………………… 33

Table 2.9 Index of Trade Interdependence among TPP Members and Relevant Economies, 2010 … 35

Table 2.10 Summary of China’s Tari� Reductions after Its WTO Accession …………………………… 41

Table 2.11 Weighted Average of Applied Import Tari� s to Di� erent Partners, 2001-2010 …………… 41

Table 2.12 Weighted Average of Applied Import Tari� s for Di� erent Commodity Groups,

2001-2010 ………………………………………………………………………………… 42

Table 2.13 Trade Dependence Indices of Selected Asian Economies on Each Other, 2010 …………… 46

Table 2.14 Trade Dependence Indices of Selected Asian Economies, 1999, 2004, and 2008-2010 …… 47

Table 3.1 International Tourist Arrivals ……………………………………………………………… 50

Table 3.2 International Tourism Revenues …………………………………………………………… 51

Table 3.3 International Tourist Arrivals in Asia, 2011 ………………………………………………… 52

Table 3.4 Asia International Tourism Receipts, 2009 and 2010 ……………………………………… 53

Table 3.5 World’s Top 10 Tourist Destinations, 2010 ………………………………………………… 53

Table 3.6 World’s Top 10 Economies by International Tourism Receipts, 2010 ……………………… 54

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Table 3.7 World’s Top 10 Economies by International Tourism Expenditures, 2010 ………………… 54

Table 3.8 Asia’s Top 5 Tourist Destinations, 2010 …………………………………………………… 55

Table 3.9 Asia’s Top 5 Tourism Destinations by Receipts, 2010 ……………………………………… 56

Table 3.10 Interdependence among Tourism Destinations in Asia, Americas and Australia, 2010 …… 57

Table 3.11 Major Exporters and Importers of Commercial Services in the Asia-Paci� c

Region, 2010 ……………………………………………………………………………… 58

List of Services Agreements in the Database Used for This Report ……………………………………… 66

Table 4.1 (a) Equity Markets Synchronization in Asia Economies, 1987-1997 …………………………… 68

Table 4.1 (b) Equity Markets Synchronization in Asia Economies, 1998-2001 …………………………… 68

Table 4.1 (c) Equity Markets Synchronization in Asia Economies, 2002-2006 …………………………… 69

Table 4.1 (d) Equity Markets Synchronization in Asia Economies, 2007-2011 …………………………… 69

Table 4.2 (a) Leading Economies in the Equity Markets in Asia, 1987-1997 …………………………… 73

Table 4.2 (b) Leading Economies in the Equity Markets in Asia, 1998-2001 …………………………… 73

Table 4.2 (c) Leading Economies in the Equity Markets in Asia, 2002-2006 …………………………… 73

Table 4.2 (d) Leading Economies in the Equity Markets in Asia, 2007-2011 …………………………… 73

Table 4.3 Recent Development of O� shore RMB Business ………………………………………… 77

Table 5.1 Share of Parts and Components in Manufacturing Trade ………………………………… 80

Table 5.2 Direction of Developing Asia’s Manufacturing Trade ……………………………………… 81

Table 5.3 Asia’s Trade in Parts and Components, 2000-2010 ………………………………………… 83

Table 5.4 Trade in Intermediate Goods in Asia, Europe and North America, 2005-2009 …………… 84

Table 5.5 Index of Dependence in Factory Asia, 2009 ……………………………………………… 85

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LIST OF FIGURES

Figure 1.1 Impact of Earthquake on Japan’s Industrial Chain ……………………………………………3

Figure 1.2 Global Supply Chain of Auto Parts Originating from the Tohoku Area ………………………4

Figure 1.3 Primary De� cit-GDP Ratio, Selected Countries, 2007-2011 ………………………………… 12

Figure 1.4 Government Debt-GDP Ratio for Selected Countries, 2007-2011 ………………………… 12

Figure 1.5 Spreads (in Basis Points) of 10-Year Euro Area Government Bond Yields to German Bonds,

2009-2011 ………………………………………………………………………………… 13

Figure 1.6 Quarterly GDP, Change over Previous Quarter, Selected Countries, Q3-2007—Q3-2011 … 13

Figure 1.7 Interest Expenditure, General Government (as percentage of GDP), Selected Countries,

2007-2013 ………………………………………………………………………………… 14

Figure 1.8 Unemployment Rate (number of unemployed as a percentage of total labor force),

Selected Countries, 2007-2011 …………………………………………………………… 14

Figure 1.9 Current Account Balance (as percentage of GDP), Selected Countries, 2007-2011 ……… 15

Figure 1.10 Government Support Measures to Financial Institutions, October 2008 - May 2010

(in percentage of 2008 GDP) ……………………………………………………………… 16

Figure 2.1 World Merchandise Exports by Region, 2008-2010 ……………………………………… 25

Figure 2.2 Asian Merchandise Exports by Industry, 2010 ……………………………………………… 28

Figure 2.3 Asian Manufactured Exports by Category, 2010 …………………………………………… 28

Figure 2.4 Top 5 Asian Exporters in O� ce and Telecom Equipment, 2010 …………………………… 28

Figure 2.5 Asian Merchandise Exports by Destinations, 2010 ………………………………………… 29

Figure 2.6 Asian Merchandise Imports by Origins, 2010 ……………………………………………… 29

Figure 2.7 Asian Merchandise Exports by Destinations, 2008-2010 …………………………………… 29

Figure 2.8 Asian Merchandise Imports by Origins, 2008-2010 ………………………………………… 30

Figure 2.9 Growth in US Exports: Top 10 Markets, 2000-2010 ………………………………………… 34

Figure 2.10 China's Rising Imports, 2000-2010 ………………………………………………………… 36

Figure 2.11 Import Growth Rates of Major Economies, 2001-2010 …………………………………… 37

Figure 2.12 Composition of China’s Imports, 2000-2010 ……………………………………………… 37

Figure 2.13 China’s Imports by End-use, 2000-2010 …………………………………………………… 38

Figure 2.14 Shares of the Major Import Partners of China, 2000-2010 ………………………………… 38

Figure 2.15 The Fastest Growing Import Partners of China, 2000-2010 ………………………………… 39

Figure 2.16 Shares of Intermediate Goods in China’s Imports from Main Asia Partners, 2000-2010 …… 39

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Figure 2.17 China’s Imports by Enterprise Types, 2000-2010 …………………………………………… 40

Figure 2.18 China’s Imports by Di� erent Trade Types, 2000-2010 ……………………………………… 40

Figure 2.19 Price Comparisons between Domestic Market and Overseas Markets, 2011 ……………… 45

Figure 3.1 Market Share of International Tourist Arrivals in the Five Regions, 2011 …………………… 50

Figure 3.2 Market Share of International Tourist Arrivals in the Asian Sub-regions, 2011 ……………… 52

Figure 3.3 Degree of Dependence on Asian Tourism of Select Destinations, 2010 …………………… 56

Figure 3.4 Growth in the Number of RTAs in E� ect in Asia …………………………………………… 59

Figure 3.5 Types of RTAs in the Asia-Paci� c Region …………………………………………………… 59

Figure 3.6 Proportion of Services Sub-Sectors in RTA Commitments Going beyond GATS

under Mode 1 ……………………………………………………………………………… 60

Figure 3.7 Proportion of Services Sub-Sectors in RTA Commitments Going beyond GATS

under Mode 3 ……………………………………………………………………………… 61

Figure 3.8 Index Scores of Services Trade Liberalization in RTAs in the Asia-Paci� c Region …………… 62

Figure 3.9 Index Score of Professional Services Liberalization in RTAs in Asia-Paci� c Region ………… 63

Figure 3.10 Index Score of Computer Services Liberalization in RTAs in Asia-Paci� c Region …………… 63

Figure 3.11 Index Score of Telecom Services Liberalization in RTAs in Asia-Paci� c Region …………… 64

Figure 3.12 Index Score of Construction Services Liberalization in RTAs in Asia-Paci� c Region ………… 64

Figure 3.13 Index Score of Distribution Services Liberalization in RTAs in Asia-Paci� c Region ………… 64

Figure 3.14 Index Score of Education Services Liberalization in RTAs in Asia-Paci� c Region …………… 65

Figure 3.15 Index Score of Environmental Services Liberalization in RTAs in Asia-Paci� c Region ……… 65

Figure 3.16 Index Score of Health and Social Services Liberalization in RTAs in Asia-Paci� c Region …… 66

Figure 4.1 (a) Correlations of Asia Economies with the US, 1987-2011 …………………………………… 71

Figure 4.1 (b) Correlations of Asia Economies with Japan, 1987-2011 …………………………………… 72

Figure 4.1 (c) Correlations of Asia Economies with China, 1987-2011 …………………………………… 72

Figure 4.2 Total RMB Deposits (demand savings and time deposits) in Hong Kong (SAR) …………… 75

Figure 5.1 Asia’s Trade in Intermediate Inputs—Share and Growth Rate, 1995-2010 ………………… 82

Figure 5.2 Distribution Trade in Intermediate Inputs in Asia, 2000-2010 ……………………………… 83

Figure 5.3 On Whom Factory Asia Depends Most—Ranking of Economies in order of

Importance, 2009 ………………………………………………………………………… 86

Figure 5.4 Who Depends on Factory Asia Most—Rankings of Economies in order of Degree of

Dependence ……………………………………………………………………………… 86

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ACRONYMSASEAN Association of South East Asian NationsASEAN+3 ASEAN plus China, Japan and KoreaBCA The Balance of current accountBEC Broad Economic CategoriesCMI Chiang Mai InitiativeDDA Doha Development AgendaECB European Central Bank EERP European Economic Recovery PlanEFSF European Financial Stability FacilityEFSM European Financial Stabilisation Mechanism EMU European Monetary UnionESM European Stability Mechanism EU European UnionFED the Federal ReserveFIEs Foreign-invested enterpriseGATS General Agreement on Trade in ServicesGDP Gross Domestic ProductIMF International Monetary FundMFI More � nancial integrated economies, i.e., the emerging marketsPBOC People’s Bank of ChinaRMB Reminbi, name for the Chinese currencyRTA Regional Trade AgreementRoW The rest of the world Shibor Shanghai Interbank O� ered RateSOEs State-owned enterprisesUNWTO World Tourism OrganizationUS the United StatesUSD US DOLLAR VAR Vector autoregressive regressionWTO World Trade Organization

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ACKNOWLEDGEMENTSThis report was edited by Lin Guijun under the general direction of Yao Wang, Executive Director of the Boao Forum for Asia. The core team of authors comprised economists from di� erent universities in Asia, the Middle East and Europe (See List of Contributors on Page X). Graduate students at the University of International Business and Economics (UIBE) also actively contributed to the completion of the report through compilation and tabulation of statistical data and events, and preparation of figures. All the authors had demonstrated great spirit of cooperation, dedication and excellent professionalism throughout the preparation of the report.

Xue Yi prepared the Acronyms and References of the report. Zheng Haoyu helped prepare the Appendix to the report. Donald Cunningham provided high-quality English proofreading and editing services. Their work and patience helped the team produce a very informative report with many details.

We wish to thank all the above members especially for their hard and creative e� orts. We are also indebted to a group of prominent people who have taken a lot of interests in our work

and kindly read the drafts of the report. They include: Zhang Yansheng, secretary general of the Academic Committee under the National Development and Reform Commission, Pei Changhong, director of the Institute of Economics, CASS, Zhou Xiaojing, director of the Asia-Africa Development Research Institute, Development Research Center of the State Council, Liu Yuanchun, deputy dean of the School of Economics of Renmin University of China, and Xu Lixin, editorial board member of Boao Review. Their insightful comments have been immensely useful.

We are also grateful to the Secretariat of the Boao Forum for Asia for the generous support in all aspects and Secretary General Zhou Wenzhong, in particular, for his advice and giving his time to prepare the Foreword for the report.

The Asian Development Bank (ADB) provided financial support for preparing the report. Additional funding came from UIBE’s “211 Project”.

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FOREWORD2011 was a year of turbulence.

Despite the deteriorating global economic environment, Asia still maintained its growth momentum.

After the global � nancial crisis in 2008. Asia continued to strengthen its position in the global trade. Asia’s share

in the global trade increased from 29 percent in 2009 to 32 percent in 2010 while the share of Europe—the

world's largest trading bloc, declined from 41 percent in 2009 to 38 percent in 2010.

Asia’s production network is the basis of the region’s economic integration. Being the largest factory

in the world, Asia’s export of intermediate inputs exceeds USD1 trillion a year and accounted for about 47

percent of global export in intermediate goods, as compared to EU’s 32 percent and North America’s 10.3

percent. Since the 21st century, di� erent from that in the 1990s, Asia’s intra-regional trade in intermediate

inputs (mainly concentrated between Northeast Asia and Southeast Asia) has increased markedly while the

inter-regional trade with North America and Europe declined to rather low levels. Today, the degree of Asian

economies’ dependence on Factory Asia has reached 64 percent. However, Asia’s integration is not only limited

to production. It is also re� ected by the high degree of intra-regional � ows of tourists and steadily increased

interdependence in overall merchandise trade (including not only intermediate goods but also � nished goods

and raw materials). In 2009, about 51 percent of Asia’s trade was among the Asian economies and in 2010, this

ratio increased to 54 percent. The evidence clearly shows that there are natural and internal forces that are

driving forward Asia's economic integration.

2011 was also a year of making choices. From the APEC Summit in Honolulu to the East Asia Summit in

Bali in November 2011, the Obama Administration promoted the US-led TPP as a model for the future Asia-

Paci� c free trade area in a high pro� le. Globally, TPP was put forward at a time when the Doha Round of the

WTO had stalled since 2009. In Asia TPP is regarded as an alternative to the ASEAN-plus model to move the

Asian economic integration process. At the present stage, the Asian economies are at crossroads with respect

to which direction they should take to promote the ongoing integration process in the region. For the US-led

TPP, however, it is not without challenges. As the current nine TPP members comprise a small portion of trade

on a regional and global level and the members tend to trade more with outside economies than among

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each other, there is a need to get other APEC members in to build a credible critical mass and at the same

time make sure that TPP is indeed “gold standard 21st century FTA”.

Looking into 2012, t it is very important for the Asian economies to intensify the e� orts to cooperate

both at a regional and global level. At the regional level, there is a need to continue the cooperation to expand

the region’s internal demand faced with the slowdown in the US and EU markets, ensure that the Asian

production network function smoothly as it is still fragile for lack of governance, work with Japan to reduce

the negative e� ect of the disasters on the region’s growth, and coordinate on the region’s future integration

path to prevent the region from splitting into several trading blocs.

This year’s report represents the continued efforts by the Boao Forum for Asia to provide updated

information and views on the progress of Asian economic integration. I am grateful to the work by an

international team of economists for their hard efforts to prepare this report. We hope that the report will

stimulate more discussion and ideas on our way to search for better means of cooperation and better lives for

the people in the region.

Zhou Wenzhong Secretary General Boao Forum for Asia

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LIST OF CONTRIBUTORSLin Guijun, Lead Writer, University of International Business and Economics, ChinaDeng Shizhuan, University of International Business and Economics, ChinaFan Ying, University of International Business and Economics, ChinaGuenter S. Heiduk, East Asian Center Warsaw School of Economics, PolandHuang Can, University of International Business and Economics, ChinaIbrahim Alomar, College of Business & Economics, Qassim UniversityJing Ran, University of International Business and Economics, ChinaLiu Qing, University of International Business and Economics, ChinaPei Jiansuo, University of International Business and Economics, ChinaQian Xuefeng, Central South University of Finance and Economics, ChinaSun Mengyang, School of Tourism, Beijing Union University, ChinaXu Nan, University of International Business and Economics, ChinaXue Jinjun, Nagoya University, JapanXue Yi, University of International Business and Economics, ChinaZhou Ting, University of International Business and Economics, China