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Asian unity: The promise and the prospects
China’s annual Boao Forum for Asia took These are the prerequisites to Asia playing China’s role in the region, and the extent
place on Hainan Island this year from a key role as “an anchor for world peace, a to which the region will or will not integrate
April 20 to April 22 under the subtitle, powerhouse for global growth and a new further with trade, investment, regulatory
“Working Together for Global Development pacesetter for international cooperation.”1 facilitation, and advancing technologies.
and Shared Future.” President Xi Jinping
The potential for Asian unity is important Of course, Asia has not been without its
delivered the keynote speech via video
for multinational corporations (MNCs) tensions, territorial disputes, hot spots,
at the opening ceremony. Acknowledging
that have concentrated activity in the and economic turbulence over recent
the complex challenges the world faces,
Chinese Mainland and are considering decades. Nor are East and South Asia
what he called changes that are “unfolding
adjustments—either looking for market not significantly involved presently in the
in ways like never before,” he devoted the
growth in the region or mitigating supply conflagrations in Eastern Europe. We were
last major section of the keynote to the
chain risks. For much of the previous two reminded of territorial issues in April when
theme of Asian unity. He spoke about the
decades, China has been addressed as an the US film Uncharted was banned in the
relative peacefulness of Asia over the past
entity in and of itself, apart from business Philippines and Vietnam over a two-second
several decades and the importance of it
in Japan and Korea, Singapore, Malaysia, shot of a map showing the region with
to economic development and the “Asian
and Indonesia. Increasingly, the C-suite China’s controversial nine-dash line, a shot
Miracle.” He stressed the need to maintain
perspective is looking at China, other inconsequential to the film but not to
peace in Asia, to deepen cooperation among
locations in South and Southeast Asia, those countries.2
Asian nations, and to promote Asian unity.
1Asian unity: The promise and the prospects
Accordingly, there are few certainties BRI activities; and technology changes, the same time frame that overall investment
about the pace and nature of intra-Asian especially related to currency, settlement, in transport began to decline.5
developments, notwithstanding President and capital flows.
However, some recent reports argue that
Xi’s optimistic view of the future. The
What does Asian unity mean, and how will it China’s investment strategy in emerging
US-China relationship is among the
shape the business potential for the region? Southeast Asia is facing increased resistance
challenges. For example, more complex
Will Asia as a whole develop in a way that as a result of growing public opposition
supply chain movements of solar panels
would indeed make it a powerhouse for and rising debt. The report finds that
are being investigated by the United States
global growth? What characteristics of Asian across its outbound BRI projects, China has
after claims that China-focused tariffs are
regional development will impact corporate maintained a 31-to-1 ratio of loans to grants
being circumvented by transshipment of
strategy and investment, organizational and a 9-to-1 ratio of grants that do not meet
components through Southeast Asian
planning, talent management, B2B Official Development Assistance (ODA)
intermediaries.3 As long as sanctions and
arrangements, and financial management? criteria to grants that do, very significantly
tariffs are finely focused on one or a few
encumbering local economies. The report
countries in the region, country of origin How events are likely to unfold within Asia
finds as well that 35% of BRI projects have
issues and required documentation will can help determine the best strategies for
encountered significant implementation
likely become more complex and may dealing with Asia from outside.
problems, and projects are less likely to
interrupt trade. If Asian capital markets
encounter problems if implemented by host
become more freely interactive, investment
Trade and investment growth countries or by third parties unconnected
prohibitions will likely require more nuanced
Intra-regional trade has grown steadily to China.6 These factors do not augur well
definition and implementation.
alongside China’s economic development. for a smooth path to increased financial
Territorial disputes have significant Asia Development Bank reported that trade integration.
economic and security implications, many with Asian and Pacific countries grew 29.6% In terms of portfolio investment,
related to valuable resource extraction. overall in the first three quarters of 2021, correlations of indexes in Asia’s markets
Little visible progress has been made in outpacing global trade growth of 27.8%. are high, even preceding material easing
settling territorial disputes. Leadership Trade within Asia increased even faster at of restrictions on cross-border capital
changes in key Belt and Road Initiative (BRI) 31.2%.4 Trade within the Asian region in flows. Major equities markets in China and
client countries have triggered difficult 2020 constituted over 58% of the total trade ASEAN countries have shown a high level
renegotiations of financing structures, and of the Asian countries involved, which is of interrelatedness whether cross-border
increased Chinese physical and financial remarkable given the importance of North portfolio flows are permitted or not. Not
presence across emerging Asia has fueled America and Europe to China exports that surprisingly, co-movement analyses have
local and global concerns about growing involve both China value-adds and broader shown that the stock market indexes of
geopolitical influence and raised a number Asia Pacific inputs. China are synchronous with the other
of public concerns.
China’s ODI into the Asia region increased markets in ASEAN, with high-frequency
This list is not exhaustive. There are significantly in 2021, especially in M&A, co-movements more evident in times of
national security issues and public health which was reported by the Chinese Ministry financial stress or crisis. This correlation
contingencies, and certainly not least of Commerce to have increased 85% to in portfolio investment movements is
important are the complex ethnic, linguistic, US$26.4 billion. Overall, major investment attributed to the close trade relations
regional, and cultural differences across the flows can be attributed to China’s BRI between China and its ASEAN neighbors.7
region that give Asia Pacific both its special projects in the region. Globally China During the depressed equity trends of
challenges and unique opportunities. reported expenditures for 2021 in the 144 the recent pandemic and trade friction
countries of the Belt and Road Initiative to era, this co-movement dynamic persisted,
In this discussion we cannot attempt to
be US$59.5 billion, about US$13.9 billion demonstrating already strong correlations
predict the timing and ultimate direction
through investment and US$45.6 billion in asset valuations even prior to a wholesale
of developments in the region, but we
through contracts. Transport and energy expansion of cross-border capital flows. In
will focus on trends that are quantifiable
were the two largest categories of BRI fact, studies of market movements in China
or publicly confirmed through official
funding, with significant focus on transport and its 12 major trading partners in Asia
announcements and publications. We
infrastructure in Asia, improving logistic show increased correlation among China
identify three perspectives on these
availability and efficiency within the region. and ASEAN equity markets in the wake of
questions: the measurable trends in trade
BRI project funding in East Asia represented the Shanghai market collapse, US-China
and investment; explicit regulatory changes
about 20% of the global total, which trade frictions, and the COVID-19 pandemic.8
and intra-Asia government initiatives, such
as those set out in regional trade and interestingly continued a significant decline
investment agreements and in China’s that began pre-pandemic, in 2019, roughly
2Asian unity: The promise and the prospects
Commercial drivers of trade and investment roles in cross-border commercial activity.12 Technology promises to play a key role
are presently complicated by political, The decision on China’s application will be in the complex currency and regulatory
diplomatic, and security frictions, but the important. environment of the Asia Pacific region. It
purely commercial calculations remain should not be surprising that in recent
RCEP is not purely relevant to trade in goods.
largely unchanged. Risk premiums are years Asia as a region has reported the
A major article in the protocol is dedicated
inviting adjustment. Beyond that, data in highest fintech revenue in the world.15
to facilitating direct investment flows.
general supports a trend of continued Rapid digitalization and the COVID-19
Among the provisions are assured national
interactivity in the region because the pandemic are spurring the growth of new
treatment for foreign invested entities and
complementarity of resource-rich countries, fintech options for trade settlement and
facilitation of inbound investment for all
advanced manufacturing countries, and capital movements, many of which promise
members through simplified administrative
emerging middle-class consumers remains reduced direct costs, transaction times,
procedures. RCEP members already
intact and strong. security risks, and complexity of multiple
accounted for 24% of global FDI flows by
currency intermediation. The digital services
2020, so as a bloc they represent a major
trade itself is expanding rapidly, with
Regulatory developments FDI destination. Yet four RCEP members
opportunities to capitalize through human
On the regulatory front, the China-led (Indonesia, China, Korea, and New Zealand)
capital development, enhanced digital
Regional Comprehensive Economic are listed in the top 10 most restricted
connectivity, institution development, and
Partnership agreement (RCEP) entered into investment destinations.13 Commitments
regulatory reform. Fintech development
force on January 1, 2022, with 10 member under the agreement are likely to increase
is likely critical to effective commercial
states of ASEAN countries plus Japan, Korea, investment flows globally into low labor-cost
harmonization if not unification of Asian
Australia, New Zealand, and China. RCEP countries in Southeast Asia from Northeast
economies, especially ASEAN ones.16
was 10 years in the making, with member Asia, North America, and Europe, both
countries committing to “deeper economic directly and indirectly. Reduction of FDI Toward this goal China continues to develop
integration and cooperation,” according to restrictions will likely facilitate supply chain the digital RMB and electronic transfer
the notes dating back to the first ministerial diversification and potentially accelerate the technologies, with years of investment in
meetings in November 2012.9 RECP is growth of ASEAN consumer markets. blockchain and other supportive systems.
robust, committing to compliance with How these interact and potentially impact
Whatever the outcome of the CPTPP
relevant WTO covenants, amplified with China’s administrative management of
application is, China’s role in and aspirations
agreements on national treatment of goods exchange rates and ongoing capital controls
for these multilateral trade agreements
and investment from all member countries will likely be highly relevant to regional
point toward the goal of greater Asian unity,
and reductions or eliminations of duties unification. Across ASEAN there is robust
with China in a key steering position to keep
on a broad range of trading goods.10 It competition for a pole position in fintech
that process on track.
includes broad, facilitating changes, such as developments, and some analysts have
a harmonized commodity description and suggested the potential contribution to
coding system.11 Overall, as RCEP is phased Technology economic development of finance-related
in, the potential contribution is substantial Finally technology advances can simplify technologies will be more impactful in the
for supply chains that can be optimized financial management, efficiency, and Asia Pacific region than anywhere else in
across several borders in the region for security in a region with more than two the world.
resources, labor, talent, and other factors, in dozen currencies and radically different Hong Kong continues to be a lead contender
what will likely be an increasingly specialized banking laws, monetary policies, and for an Asian financial hub and boasts
but interactive network of geographies. currency histories. The Asian Financial hundreds of fintech companies.17 The
Crisis began in Thailand in 1997 and swept Singapore Fintech Association reports
China also applied for membership in the
through Southeast and East Asia, damaging over 860 domestic fintech companies and
Comprehensive and Progressive Agreement
currencies, equity markets, and asset memorandums of understanding with
for Trans-Pacific Partnership (CPTPP) in
values. It evidenced the speed with which more than 50 similar associations and
September of last year. That adds countries
numerous countries in the region could be governments around the world.18 As of
on the other side of the Pacific, notably
impacted, in part from investment bubbles mid-2019, Indonesia reported 249 fintech
Canada, Mexico, Peru, and Chile, and
and foreign debt, and how that impact companies, many focused on serving an
potentially would aid in restarting productive
was amplified by a lack of coordinated emerging middle class with a low level of
trade talks with the United States. China’s
response.14 Rescue efforts that began in retail banking relationships.19 Malaysia is
application also presents interesting
late 1997, significantly supported by the issuing digital bank licenses, pioneering
issues for key CPTPP terms, especially
International Monetary Fund, settled the digital Islamic banking platforms, and
for state-owned enterprises, information
crisis but did not necessarily address the reporting overall reductions of remittance
transparency, government procurement
underlying risks on a regionwide basis.
practices, and limitations of government
3Asian unity: The promise and the prospects
costs on the order of 56%. Malaysia a dramatic impact on consumption growth
reported an increase of 125% in mobile and potentially cross-border trade and
banking in 2020, attributed to the pandemic investment expansion.
among other things.20 As of February this
Even accounting for the economic impact
year, there are 289 reported fintech startups
of COVID-19, we can see evidence of
in Thailand focused on retail transaction
the compounding effect of proactive
settlement, B2B settlement, health and
steps to accelerate interregional trade
P&C insurance, and investment and asset
and investment, to create a physical
management.21 By the end of the third
infrastructure, regulatory harmonization,
quarter in 2021, Vietnam reported 188
and virtual financial systems that will
operating fintech companies, lagging many
engender a more unified business
of its ASEAN neighbors but growing very
environment across East and Southeast
quickly.22
Asia. These are supported by activities as
China has demonstrated that a population wide-ranging as infrastructure investment
that lacked all but the most basic enabling new workforces and consumption
relationships with financial institutions, growth, focused government initiatives to
such as banks, until recently can leapfrog to reduce constraints and costs of crossing
almost ubiquitous use of the world’s most borders, increased transport costs adding
advanced fintech tools. The rest of emerging efficiency to nearby markets, developing
Asia could follow suit. The intensity of specializations in the diverse economies
innovation and competition supported by across the region, and technology
the data suggests this process is underway advancements in payments and financial
in all major Asian markets. Whether we management.
agree or not with the proposition that
But as we said in the introduction, we
fintech will be more impactful in Asia than
have reviewed a limited set of factors that
elsewhere in the world, it is clear that
will likely shape the timing and direction
widespread interest in and deployment of
of developments in the Asian business
fintech across Asia is already facilitating
environment. Many more will come into play,
commerce and supporting consumption
some already clear for years, like territorial
growth within countries and is likely to do so
disputes and mixed public sentiment;
across borders as well.
others not, like the emergence and impact
of COVID.
The path to unity MNC initiatives to deconcentrate sourcing
As important as these three areas of and market investment in Mainland China
development are in and of themselves— should not be purely reactive and risk-
accelerated economic development, focused. To be sure, there are challenges
significant regulatory easing, and fintech that are urgent, but as part of geographic
development and expansion—their diversification with a view toward a more
potential interactions are equally significant. hospitable, unifying Asia Pacific region,
For example, the regulatory changes there are new options for improving B2B
implicated by agreements such as RCEP integration, refining outsourcing initiatives,
and CPTPP will likely accelerate the cross- meeting local content and other market
border consolidation of fintech startups into access requirements, tailoring new product
operable regionwide systems, providing development, and engaging very large
more convenience and efficiency than emerging consumer markets. While many
current service offerings. The relatively C-suites are grappling with the headline
low level of established banking and crises, one following another, assessing
insurance relationships among ASEAN developments and prospects for a more
populations that are nonetheless entering unified Asia Pacific business environment is
middle-class lifestyles is fueling a leapfrog both timely and potentially very valuable.
dynamic into fintech usage and promising
4Endnotes
1. Boao Forum, “Rising to challenges and building a bright future through cooperation” keynote speech by H.E. Xi Jinping, Boao Forum for Asia Annual
Conference 2022.
2. Reuters, “South China Sea: Philippines pulls Hollywood film ‘Uncharted’ from cinemas over map showing nine-dash line,” April 27, 2022.
3. Ella Nilsen, “Solar energy projects are grinding to a halt in the US amid investigation into parts of China,” CNN, May 6, 2022.
4. Asian Development Bank (ADB), “Trade integration deepens in Asia and the Pacific amid pandemic,” news release, February 9, 2022.
5. Nedopil Wang, “Brief: China Belt and Road Initiative (BRI) Investment Report 2021,” Green Finance & Development Center, February 2, 2022.
6. Ammar A. Malik et al., Banking on the Belt and Road: Insights from a new global dataset of 13,427 Chinese development projects (Williamsburg, VA: AidData at
William & Mary, September 2021).
7. Ijaz Younis et al., “Stock market comovements among Asian emerging economies: A wavelet-based approach,” PLOS One, October 2020.
8. Yujie Shi, “What influences stock market co-movements between China and its Asia-Pacific trading partners after the Global Financial Crisis?,” Pacific-Basin
Finance Journal 72, April 2022.
9. Regional Comprehensive Economic Partnership (RCEP), “Joint declaration on the launch for the Regional Comprehensive Economic Partnership,”
October 2019.
10. RCEP, “Chapter 2: Trade in Goods,” RCEP Agreement, August 31, 2020.
11. RCEP, “Chapter 1: Initial Provisions and General Definitions,” RCEP Agreement, August 31, 2020.
12. Kandy Wong, “Explainer: What is the CPTPP and why is China eager to join?,” China Macro Economy, May 5, 2022.
13. FDI Center, “RCEP – the world’s largest trade agreement and its impact on FDI,” November 20, 2020.
14. Corporate Finance Institute (CFI), Asian Financial Crisis page, accessed May 2022.
15. Minh-Ngoc Nguyen, “Fintech in Vietnam – statistics & facts,” Statista, March 2, 2022.
16. ADB, “Trade integration deepens in Asia and the Pacific amid pandemic.”
17. Fintech.coffee, “Hong Kong’s 101 fastest growing and top fintech companies,” accessed May 2022.
18. Singapore Fintech Association (SFA), About us page, accessed May 2022.
19. Cekindo, “[2022 Updated] Important points that you need to know about fintech in Indonesia,” April 1, 2022.
20. https://fintechnews.my/wp-content/uploads/2021/05/Fintech-Report-Malaysia-2021-Fintech-News-Malaysia-x-BigPay.pdf
21. Fintech News Malaysia, “Fintech Malaysia Report 2021 – Fintech reaches an inflection point in Malaysia,” April 27, 2021.
22. Tracxn, “Fintech startups in Thailand,” February 26, 2022.
23. Minh-Ngoc Nguyen, “Number of fintech companies in operation in Vietnam 2017 – 9M 2021,” Statista, January 26, 2022.
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