Plenty more to gain
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Trade integration in Asia: Plenty more to gain

  • Article
  • Trade integration in Asia is advancing rapidly, driven by supply-chain shifts and liberalisation and led by mainland China
  • Intra-regional trade is set to rise 65%, or USD400bn per year until 2030 led by the China-ASEAN and India-ASEAN corridors
  • Regional integration – whether through trade or financing agreements – is becoming increasingly institutionalised

Regional integration in Asia

‘Geofragmentation’ is becoming a popular buzzword. Growing geopolitical tensions and the backlash against globalisation in many parts of the world, so the argument goes, is putting at risk the decades-long process of ever greater, global economic integration.

No doubt the challenges are ever more apparent. But this is certainly not the case everywhere. Asia is a case in point.

Here, as we highlight in a new report, the scope and scale of economic integration continues to proceed at pace. For example, half the world’s 10 fastest growing trade corridors sit within the region and nearly 60% of Asia’s trade is conducted with regional trade partners, up from 53% in 2000. Cross-border investment within Asia is also rising at a steady clip.

Asia’s economic integration continues to proceed at pace

The focal point is ASEAN. Its economies have long been closely integrated with Japan, Korea, and Taiwan. Increasingly, however, it is the ties with mainland China that are driving integration. Meanwhile, ASEAN’s trade and investment relationship with India is also deepening.

We expect intra-Asian exports to rise from USD4.3trn in 2023 to USD7.1trn in 2030. Similarly, when it comes to cross-border FDI flows within the region, this is likely to double to over USD700bn by 2030.

In the past, Asian trade integration was primarily driven by supply-chain trading and more ad-hoc policy arrangements. But the process is changing in two respects.

First, while supply-chain trading – the shipment of goods for segmented assembly that are ultimately consumed elsewhere in the world – is still a key driver of intra-regional trade and cross-border investment, a greater and greater share of both is now directly due to consumption within Asia itself. In ASEAN, for instance, more and more trade within the sub-region is for local use, rather than to serve global supply chains.

Second, while in the past, outside of ASEAN, regional trade and investment agreements were relatively sparse, this is beginning to change: the greater institutionalisation of regional trade and investment arrangements – foremost the Regional Comprehensive Economic Partnership (RCEP) and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) – will further prune trade and investment barriers and bring greater predictability.

Geofragmentation, perhaps. But not everywhere.

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