Edited by Yung Chul Park, Takatoshi Ito and Yunjong Wang
Chapter 16: A New Financial Market Structure for East Asia: How to Promote Regional Financial Market Integration
16. A new ﬁnancial market structure for East Asia: How to promote regional ﬁnancial market integration Gordon de Brouwer and Jenny Corbett 1. INTRODUCTION East Asia’s capacity to secure strong and stable economic growth depends on, among other things, a secure foundation of well functioning ﬁnancial markets, institutions and systems. In general, the region’s ﬁnancial markets are relatively weak, undeveloped and unsophisticated, although there are exceptions, notably Japan, Singapore, Hong Kong and Australia.1 The region’s ﬁnancial institutions are also generally weak, again with a number of exceptions. Not only are the banking sectors of some of the crisisaﬀected economies still heavily burdened by the fallout from the ﬁnancial crises of 1997 and 1998, but most banks in China and Japan are overwhelmed by non-performing loans. Furthermore, domestic markets and institutions in the region are not well integrated with each other. This has a bearing on the economic outlook of East Asia. Weak ﬁnancial markets and institutions impede economic eﬃciency, economic growth and risk management, making East Asia more vulnerable to adverse economic and ﬁnancial shocks. Financial weakness and fragmentation mean that the region lacks international inﬂuence, and remains reactive rather than proactive to international market and policy developments. The current state of East Asia’s ﬁnancial markets, institutions and integration provides many big opportunities for signiﬁcant improvement and deepening. Ultimately, responsibility for this lies with policymakers – oﬃcials and politicians – and how they design and enforce market and institutional mechanisms. But it is also incumbent on ﬁnancial...
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