Ding Gang：Steer Asian cash toward region’s needs
Illustration: Liu Rui/GT
Since the beginning of this year, foreign capital has continually been pulled out of Asia, posing a sustained shock to emerging economies in the region.
This demonstrates the fragility of the Asian economy due to its heavy dependence on foreign investments. At the same time, it also points to the underdeveloped financial market of the continent.
Asia is not short of money. The foreign exchange reserves held by central banks in Asia's emerging economies amounted to $5.3 trillion in 2012, as much as Japan's GDP that year.
That money, according to calculations of economists, could fund a 265,000-kilometer-long high speed railway which could span the earth six times and a half, if it was used solely to boost transportation in Asia.
However, Asia still faces funding shortages in many aspects such as infrastructure construction. Almost all emerging Asian economies are aiming at luring foreign investors into their infrastructure projects.
It is estimated that the developing countries of Asia need approximately $7 trillion to fund infrastructure construction in the next decade. Whether such considerable input can be assured is key to the upgrading of the Asian economy and the sustainable development of the entire region.
The problem is that Asia's emerging economies cannot afford this large amount of money now. They are devoting more money to buying US bonds and supporting the credit-worthiness of dollar, while in contrast spending little on projects that the public needs urgently.
Besides foreign exchange reserves, more capital from Asian enterprises and private savings has flowed into the developed European economies and the US through varied financial channels.
Bond markets in these developed economies are low-yielding and also frequently stricken by crisis, but Asia's emerging economies are still willing to venture their hard-earned money into them. The main reason is that Asia doesn't have its own sound capital market which is able to attract trade surplus from various countries.
There is a gulf between financial sector and the real economy sector in Asia. The former fails to fully mobilize capital to enter into the real economy.
Asia's emerging economies heavily depended on investments from the US and Europe in the past. However, the situation has changed nowadays. In the future, gaining Western capital will become an uneasy prospect.
As a result, how to form a more active interaction between the financial and bond markets within Asia has become a big challenge for the further economic development of this region.
Asia needs to develop its own financial market to provide more driving force for its own development. And the continent's own savings should be recycled and utilized in its own region.
As the biggest economy in Asia, China plays an important role in promoting regional financial cooperation.
Currently, China is taking the initiative in fostering the development of infrastructure bonds in Asia with ASEAN, South Korea and Japan in order to boost infrastructure projects in Southeast Asian countries.
Chinese President Xi Jinping proposed the establishment of an Asia infrastructure development bank in the APEC meeting in early October. All these moves are helpful in establishing an Asian financial market.
Besides, China has a large amount of household savings, and Chinese commercial banks have abundant funds, which could provide more cross-border financing to support economic projects in Asia.
Asia's emerging economies should gradually set up an Asian monetary fund like the IMF, based on the Chiang Mai Initiative Multilateralization Agreement. Countries should contribute money to a pool for emergencies. Moreover, the reserve currencies should be diversified instead of only being confined to the dollar.
Asia's emerging economies need to join hands in building and improving the financial market, which will not only help deal with potential financial risks, but also become a way for Asians to use their money for their own affairs.
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