Tracking Asia’s Progress on Economic Integration

By Guan Xin

The world’s largest economic and trading region, Asia, is becoming more integrated. The Boao Forum for Asia has released its flagship report, which tracks the latest progress in the region’s economic integration. From merchandise to services trade, from robust intra-regional direct investment to a bigger share of cross-border payments using local currencies, there is increasing cohesiveness among Asian economies.

Let’s start with the big picture. The report, titled Asia’s Economic Outlook and Integration Progress, forecasts regional growth this year at 4.5%. That’s 1.4 percentage points higher than the IMF’s outlook for global growth in 2024.

When it comes to trade, the study highlights the growing reliance of Asian economies on each other for imports and exports. Tightly knit production and supply chain networks across the region bolster Asia’s position as an indispensable global manufacturing powerhouse. Furthermore, while we see protectionism elsewhere in the world, Asia believes in fostering stronger trade connections. Asia is home to the world’s largest free trade agreement, the Regional Comprehensive Economic Partnership, which fosters lower trade barriers and promotes a more seamless flow of goods across borders within the region.

But it’s not just the goods trade. Asia is seeing significant growth and diversification of its service trade as well. The region’s service economy has become increasingly vital to economic integration, driven by innovation and digitalization. In particular, the region’s digital trade is thriving, underpinned by the Asia-Pacific as the world’s largest retail e-commerce market. As regional economies continue to liberalize service trade and harmonize regulation, we can expect a more integrated service market in the region.

Looking at foreign direct investment, the report tracks data up to 2022. FDI flows into the Asia-Pacific grew by nearly 6.8% compared to the previous year despite a global FDI downturn in 2022. Although 2022 saw a slight decline in intra-regional FDI, the levels remained robust, and investments from other regions into Asia increased. As Asia experiences stronger trade integration, I expect direct investment in each other’s economies to continue to rise through a deep-rooted belief in the region’s collective economic future.

On Asia’s financial ties, the report highlights a notable increase in the use of local currencies for trade settlements, reducing dependence on major global currencies, which can lead to greater financial stability. Asia is also seeing advances in financial infrastructure, such as payment systems and digital financial services, that are crucial for facilitating smoother and more efficient financial transactions across Asian economies.

Overall, Asia’s economic integration is not just about economic gains, it fortifies the region against external shocks and geopolitical uncertainties. In an era where protectionism and economic fragmentation loom large, Asia’s commitment to integration acts as a ballast, ensuring not just regional but global stability.