Emerging Markets Essay

1579 words - 7 pages

Asian economies went through significant transformation during the 2000s. They became part of global supply chains, major global commodity consumers and large capital exporters, and were also deeply involved in regional co-operation initiatives. These factors contributed to global disinflation in manufactured goods prices, abundant global liquidity and strong growth in commodity-exporting economies including Australia. (maybe because of 1997-1998 Asian financial crisis)

In the coming decade, Asian economies are likely to continue their ascendancy, albeit at a slower pace, which should eventually decouple Asia from the advanced economies. With increasing domestic cost ...view middle of the document...

[formation of regional supply chains] Vertically integrated supply chains across the region and increasingly important role of the Asian economies as commodity consumers;
2. [changes in external accounts and capital flows] Large current account surpluses, accumulation of foreign exchange reserves, capital exports
3. Policy initiatives in promoting regional co-operation (still weak till now)

fundamental changes in Asia’s industrial structure and regional division of labour (China entered WTO in 2001, FDI grew dramatically, producers move final stages of production to China -> begin vertical integration of supply chains, facilitated by market-driven forces of cross-border trade, FDI and financial flows);
shifting supply chain and growing regional interdependence are illustrated by the increasing share of intra-regional trade in Asia, intra-regional trade has been gaining importance since the Asian financial crisis (Asia’s growing share in China’s total imports, intermediate good + consumer goods, meaning China is a derived source of demand rather than an independent source of demand for the region and intra-regional trade relies heavily on extra-regional final demand, implying sino-us=aisa-us and it’s premature to say Asia has decoupled from US; eg, China factor is striking for Australia in share of ores and metals imports, the largest importer from 2009 instead of Japan)

Before 1998 crisis (mid 1990s), Asian countries are capital importers with current account deficits -->during much of 1st decade of 21st century, current accounts remained in surplus, significant capital exporting --> important part of the growing global imbalances during the years leading up to the GFC (current account balances of some Asian economies saw dramatic turns from deficits to surplus around Asian financial crisis, which is the main reason)
Policy-makers made efforts: the collapse of investment in much of Asia
Another development was efforts to encourage more outward FDI; beat Latin America who dominated outward FDI in 1980s
Widening current account surpluses and rapid accumulation of foreign exchange reserves, so Asian region became a major exporter of capital, outflows mainly take the form of debts and securities in advanced economies (China and Japan are among the world’s largest investors in the US Treasury bond market; of China’s total foreign reserves, 70% was in US dollar-denominated assets)
It’s uncertain whether or not Asia’s capital exports which hold down the cost of capital will continue at current levels (coz developing countries are expected to import); US Treasury market, low return --> sovereign wealth funds

After Asian financial crisis, there was an important change in this unilateral approach and policy-makers made efforts to promote regional co-operation (2 factors driving this change: deeper integration and stronger competition; problem revealed by Asian financial crisis: individual economies not strong...

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