Asian Economic Outlook and Integration Progress Annual Report 2022 PDF Free Download

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Asian Economic Outlook and Integration Progress Annual Report 2022 PDF Free Download

Asian Economic Outlook and Integration Progress Annual Report 2022 PDF free Download. Think more deeply and widely.

Boao Forum for Asia

Asian Economic Outlook and Integration Progress

Annual Report 2022

对外经济贸易大学出版社

中国·北京

图书在版编目（CIP）数据

博鳌亚洲论坛亚洲经济前景及一体化进程 2022 年度报

告 = Boao Forum for Asia Asian Economic Outlook

and Integration Progress Annual Report 2022: 英文

. —北京：对外经济贸易大学出版社，2022.3

ISBN 978-7-5663-2389-7

Ⅰ. ①博… Ⅱ. Ⅲ. ①经济一体化−研究报告−亚洲

−2022−英文 Ⅳ. ①F13

中国版本图书馆 CIP 数据核字（2022）第 066522 号

Boao Forum for Asia

Asian Economic Outlook and Integration Progress Annual Report 2022

责任编辑：谭利彬

出版发行：对外经济贸易大学出版社邮政编码：100029

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字数：299 千字印次：2022 年3月第 1次印刷

ISBN 978-7-5663-2389-7 定价：

200.00 元

III

TABLE OF CONTENTS

ACRONYMS ···························································································································································· IX

LIST OF CONTRIBUTORS ····································································································································· XI

FOREWORD ························································································································································· XIII

Part I Asian Economic Outlook

Overview ···························································································································································· 003

Chapter 1 Asian Economic Outlook and Policy ······················································································ 005

1.1 Economic Growth ········································································································································································· 005

1.2 Employment and Income ························································································································································ 011

1.3 Prices and Monetary Policies ················································································································································· 014

1.4 Trade and Investment ································································································································································ 018

1.5 Financial Markets ··········································································································································································· 026

Chapter 2 Hot Issues of Asian Economies ································································································ 035

2.1 Global Development Initiative ·············································································································································· 035

2.2 Climate Change and the Green Economy ····················································································································· 037

2.3 Post-Epidemic Normalization of the US and European Macroeconomic Policies ································ 039

2.4 New Developments in the Transformation of International Trade Rules ··················································· 043

Part II Asian Economic Integration Progress

Chapter 3 Merchandise Trade Integration in Asia ················································································· 057

3.1 Integration of Merchandise Trade ······································································································································· 057

3.2 Integration of Factory Asia ······················································································································································ 067

Chapter 4 Service Trade Integration of Asian Economies ···································································· 081

4.1 Asian Service Trade Integration ············································································································································ 081

4.2 The Present and Future of Digital Trade in Asia ·········································································································· 088

4.3 Key Service Industry Analysis ················································································································································ 109

Chapter 5 FDI Integration in Asia ·············································································································· 115

5.1 Current Status of FDI Integration in Asia ························································································································ 115

5.2 Outlook of Cross-Border Investment in Asia ················································································································ 120

Chapter 6 Financial Cohesion and Development in Asia ····································································· 121

6.1 Financial Market Openness in Asia ····································································································································· 121

6.2 Progress in Asian Monetary Cooperation ······················································································································ 124

6.3 Development and Innovation of Asian International Financial Centers ···················································· 126

References ························································································································································· 133

Preparation Notes and Acknowledgements ······························································································ 135

LIST OF TABLES

Table 1.1 List of Benchmark Interest Rate Adjustments in Some Asian Economies, 2021

(basis point) ············································································································································································· 018

Table 1.2 Ten-Year Government Bond Yields of Some Asian Economies, 2021

(%, percentage point) ······················································································································································· 030

Table 1.3 NPL Ratios of Banks in Some Asian Economies, 2017-2020 (%) ····························································· 032

Table 3.1 ERI-ASIA for Selected Asian Economies ················································································································· 059

Table 3.2 Trade Dependence Index for Selected Asian Economies, 2020 (%) ···················································· 060

Table 3.3 Economies with the Largest Trading Partner from Asia, 2020 ································································· 064

Table 3.4 Trade Flows Among Asian Economies and Growth Rate Year-on-Year, 2020

(USD billion, %) ······································································································································································ 065

Table 3.5 Merchandise Exports by Asian Regions, 2020 (USD billion) ····································································· 067

Table 3.6 Trade Dependence Index of Intermediate Products Among Members of Factory

Asia, 2020 ·················································································································································································· 070

Table 3.7 Trade Dependence Index of Intermediate Products Among Members of Factory

Asia, 2019 ·················································································································································································· 071

Table 3.8 Trade Dependence Index of Intermediate Products of Major Asian Economies on

Factory Asia ············································································································································································· 072

Table 3.9 Parts and Components of Factory Asia Ranked Among the Top 22 in Terms of

Total Exports, 2020 (USD billion) ································································································································ 073

Table 3.10 Parts and Components of Factory Asia Ranked Among the Top 22 in Terms of

Total Exports, 2019 (USD billion) ································································································································ 074

Table 3.11 Dependency of 22 Parts and Components on Major Economies of Asia, EU27,

USMCA, CPTPP and RCEP, 2020 ·································································································································· 077

Table 3.12 Dependency of 22 Parts and Components on Major Economies of Asia, EU27,

USMCA, CPTPP and RCEP, 2019 ·································································································································· 078

Table 3.13 List of China’s Parts and Components with Competitive Advantage, 2020 ··································· 079

Table 4.1 Service Exports of 25 Selected Economies (in Gross Terms and Value Terms), 2020

(USD100 million, %) ···························································································································································· 083

Table 4.2 Service Imports of 25 Selected Economies (in Gross Terms and Value Terms), 2020

Table 4.3 The Services Content and Composition of the Manufacturing Export in Selected

Asian Economies, 2020 (USD100 million, %) ······································································································ 086

Table 4.4 Trade Balance of Services in 25 Asian Economies, 2020 (USD100 million) ····································· 087

Table 4.5 Top Ten Economies in Digitally-Deliverable Service Exports, 2020 ······················································ 096

Table 4.6 Top Five Economies in ICT or AI IP5 Family Patent Applications ··························································· 098

Table 4.7 Industries of Top Unicorns by Valuations, 2021 ································································································ 099

Table 4.8 Top Ten Companies by Market Capitalization in Internet and E-Commerce

Industries ·················································································································································································· 100

Table 4.9 The Most Visited Online Platforms in Southeast Asia, April 2021 ·························································· 101

Table 4.10 Digital Transformation Strategies in Selected Asian Economies ··························································· 103

Table 4.11 Data and Privacy Protection Policies in Selected Asian Economies ···················································· 106

Table 4.12 ICT Infrastructure and Education Gap in Asia ···································································································· 108

Table 4.13 Year-on-Year Change in Tourism Revenue of Major Asian Economies ·············································· 111

Table 4.14 Tourism Dependence Index on Asia and the Pacific Region for Selected Economies,

2017-2020 (%) ········································································································································································ 112

Table 4.15 Interdependence Among Different Asian and the Pacific Economies, 2020 (%) ························ 113

Table 5.1 Interdependence of FDI (Inward plus Outward), Selected Asian Economies, 2020 (%) ········· 116

Table 5.2 Interdependence of Inward FDI, Selected Asian Economies and the US, 2020 (%) ·················· 118

Table 5.3 Self-Dependence of Inward FDI in Asia, Selected Asian Economies, 2016-2020 (%) ···················· 118

Table 5.4 Interdependence Index for Outward FDI, Selected Asian Economies, 2020 (%) ························· 119

VII

LIST OF FIGURES

Figure 1.1 Weighted Real GDP Growth Rates of Asian Economies in Different Regions ································ 007

Figure 1.2 Unemployment Rates of Different Regions in Asia ························································································ 012

Figure 1.3 Inflation Trends of Asia ····················································································································································· 015

Figure 1.4 Year-on-Year Growth Rates of Asia's Imports and Exports ········································································· 019

Figure 1.5 Year-on-Year Growth Rates of Trade in Services in Asia ··············································································· 022

Figure 1.6 FDI Inflows in the World and Asia ····························································································································· 024

Figure 1.7 FDI Outflows in the World and Asia ························································································································· 025

Figure 1.8 Stock Index Rises and Falls of Some Asian Economies, 2021 ··································································· 027

Figure 1.9 Exchange Rates of Some Asian Currencies Against the US Dollar, 2021

(direct quotation method) ············································································································································· 028

Figure 3.1 ERI-ASIA for Selected Asian Economies, 2012-2020······················································································· 058

Figure 3.2 Trade Dependence Index for Selected Economies, 2016-2020 ····························································· 064

Figure 3.3 The Number of Economies with the Largest Trading Partner from Asia ·········································· 064

Figure 3.4 The Index of Self Dependence for Factory Asia, 2008-2020 ····································································· 068

Figure 3.5 Change in the Export of Parts and Components Ranked Top 22 of Factory Asia,

2019-2020 ················································································································································································ 076

Figure 4.1 Conceptual Framework of Digital Trade················································································································ 088

Figure 4.2 Sales and Proportion of E-Commerce in Various Economies, 2019 ····················································· 089

Figure 4.3 Sales and Growth Rate of Retail E-Commerce in Various Economies, 2020 ··································· 091

Figure 4.4 Global Distribution of the Market Size of Cross-Border E-Commerce, 2020 ·································· 092

Figure 4.5 Trading Volume and Forecast of the Cross-Border E-Commerce in Five Southeast

Asian Economies ·································································································································································· 092

Figure 4.6 Total Imports and Exports of China’s Cross-Border E-Commerce and Growth Rate

(on a comparable basis) ·················································································································································· 093

Figure 4.7 Proportion and Year-on-Year Growth of the Top 10 Categories of China’s Cross-Border

E-Commerce Export Retail, 2020 ······························································································································· 093

Figure 4.8 Proportion and Year-on-Year Growth of the Top 10 Categories of China’s Cross-Border

E-Commerce Import Retail, 2020 ······························································································································ 094

Figure 4.9 Share of Digitally-Deliverable Services by Region, 2005-2020 ································································ 095

Figure 4.10 Growth Rates of Digitally-Deliverable Services by Region ········································································ 095

VIII

Figure 4.11 Sub-Sectors of Digitally-Deliverable Services by Region ············································································ 096

Figure 4.12 Share of Sub-Sectors in Digitally-Deliverable Services in Selected Economies ··························· 097

Figure 4.13 Share of Digital Revenue by Economy ··················································································································· 102

Figure 4.14 Year-on-Year Change in Global Arrivals to Asia by Region, 2020 ·························································· 110

Figure 4.15 Year-on-Year Change in Domestic Tourist Arrivals in China, 2020 ························································ 111

Figure 4.16 Tourism Dependence Index on Asia and the Pacific Region for Selected Economies,

2020 ····························································································································································································· 113

Figure 6.1 Capital Outflow Under Global Portfolios, 2017-2020 ···················································································· 122

Figure 6.2 Capital Inflow Under Global Portfolios, 2017-2020 ······················································································· 123

Figure 6.3 Capital Inflow Under Global Portfolios, 2009-2020 ························································································ 123

Figure 6.4 Growth Rate (Year-on-Year) of Capital Inflow Under Global Portfolios,

2010-2020 ················································································································································································ 124

Figure 6.5 Share of International Payments in Major Global Currencies, December 2021 ························ 126

Figure 6.6 GDP of Asian Financial Center Cities ······················································································································· 127

Figure 6.7 Evolution of the Proportion of Added Value of Financial Industry to GDP in

Singapore, Hong Kong SAR, China and Tokyo ·································································································· 128

Figure 6.8 The Share of Various Industries in Tokyo’s GDP, 2019 ···················································································· 128

Figure 6.9 The Evolution of Stock Market Capitalization of Chinese Mainland and Hong Kong

SAR, China ·················································································································································································· 130

Figure 6.10 Stock Market Capitalization of Tokyo Stock Exchange, Including First, Second and

the GEM ······················································································································································································ 130

Figure 6.11 Evolution of Total Annual Stock Trading Volume of Asian Financial Center

Stock Exchanges ·································································································································································· 131

Figure 6.12 Evolution of Total Annual Value of Stock Trading volume as a Percentage of

GDP on Asian Financial Center Stock Exchanges ···························································································· 131

Figure 6.13 Annual Turnover Ratio of Domestic Shares Traded on the Asian Financial

Center Stock Exchanges ·················································································································································· 132

ACRONYMS

ACCP ASEAN Committee on Consumer Protection

ADB Asian Development Bank

AIIB Asian Infrastructure Investment Bank

ARP American Rescue Plan

BOI Thailand Board of Investment

CMI Chiang Mai Initiative

CMIM Chiang Mai Initiative Multilateralization

CPIS Coordinated Portfolio Investment Survey

CPTPP Comprehensive and Progressive Agreement for Trans-Pacific Partnership

DEPA Digital Economy Partnership Agreement

EAEU Eurasian Economic Union

ERI-ASIA Export Reliance Index on Asia

FAO Food and Agriculture Organization of the United Nations

FDI Foreign Direct Investment

Fintech Financial Technology

FOMC Federal Open Market Committee

GDP Gross Domestic Product

GFCI Global Financial Center Index

GSCPI Global Supply Chain Pressure Index

IIF Institute of International Finance

ILO International Labor Organization

IMF International Monetary Fund

ITU International Technological University

JETRO Japan External Trade Organization

LCS Local Currency Settlement

LME London Metal Exchange

LPR Loan Prime Rate

OECD Organization for Economic Co-operation and Development

OFDI Outward Foreign Direct Investment

OFDII Outward Foreign Direct Investment Index

RCEP Regional Comprehensive Economic Partnership

RTA Regional Trade Agreement

SaaS Software-as-a-Service

SDR Special Drawing Rights

SWIFT Society for Worldwide Interbank Financial Telecommunications

TPP Trans-Pacific Partnership

UNCTAD United Nations Conference on Trade and Development

UNDP United Nations Development Program

USMCA United States-Mexico-Canada Agreement

WEF World Economic Forum

WHO World Health Organization

WTO World Trade Organization

LIST OF CONTRIBUTORS

Zhang Yuyan, Editor-in-Chief, Institute of World Economics and Politics, Chinese Academy of Social Sciences

Feng Weijiang, Institute of World Economics and Politics, Chinese Academy of Social Sciences

Xu Xiujun, Institute of World Economics and Politics, Chinese Academy of Social Sciences

Xiong Aizong, Institute of World Economics and Politics, Chinese Academy of Social Sciences

Jia Zhongzheng, Institute of World Economics and Politics, Chinese Academy of Social Sciences

Lin Guijun, Editor-in-Chief, University of International Business and Economics (UIBE)

Tu Xinquan, China Institute for WTO Studies, UIBE

Deng Shizhuan, Beijing University of Architecture

Pei Jiansuo, Renmin University of China

Wang Chunrui, University of International Business and Economics

Wang Fei, University of International Business and Economics

Gao Kailin, University of International Business and Economics

Li Siqi, China Institute for WTO Studies, UIBE

Du Yingxin, China Institute for WTO Studies, UIBE

Zhang Meng, University of International Business and Economics

Deng Haowen, HSBC Business School, Peking University

Cao Li, Editor-in-Chief, Boao Forum for Asia Academy

Wang Qianzheng, Boao Forum for Asia Academy

XII

XIII

FOREWORD

The year 2021 witnessed global economic recovery amid the on-going fight against the COVID-19

pandemic. The recovery, however, is decelerated and polarized owing to a wide range of factors

including incessant mutations of the virus, divided vaccination efforts, impeded core supply chains,

rising prices of global commodities and inflationary pressures, and constant international trade

frictions. To make it more complicated, the Russia-Ukraine conflict that erupted at the end of February

2022 has overwhelmingly impacted international energy markets, financial markets and global supply

chains, and disrupted the international political landscape. The great changes not seen in a century

have accelerated. This grave situation prompts every Asian country to address a key issue of how to

strike a balance between development and security.

In 2021, Asia remained a pivotal driving force behind global economic growth. The fight

against the pandemic and resumption of work and production across Asia has strongly boosted the

recovery of world economy and trade. In spite of the disrupted supply chains and virus variants,

economic and trade integration has maintained its momentum in Asia, trade dependency has

remained at a high level within the continent, and both ASEAN and China have retained their position

as hubs of trade in goods. Meanwhile, Asian factories have found their mutual dependency to be

bouncing back. The thriving new business models, represented by Asian digital trade, have gained a

competitive edge over their international counterparts and emerged as new driver for further

regional integration and global trade recovery, shrugging off the huge impact of the pandemic on

international tourism and travel. Moreover, the increasingly integrated production, trade, investment

and finance have increased national income and people’s wellbeing throughout Asia. However, new

variants of virus have caused waves of outbreaks in the densely populated Asia. Unemployment in

Asia, particularly in South Asia, has soared and tens of millions of people have been pushed back into

poverty. Asian countries need to achieve economic recovery while protecting the lives and health of

their workers, and address the increasing pressure on inclusive growth. In addition, as a response to

global inflation, advanced economies are adjusting their macro-economic policies, which is also

expected to produce obvious spillover effect on Asian economies.

Currently, Asian countries should work together in developing new solutions to global

governance. The enforcement of the Regional Comprehensive Economic Partnership (RCEP) has

created the world’s most populous free trade area with the largest size in economy and trade,

building an institutional foundation for Asia to promote regional economic growth, trade and

XIV

investment and to open wider to the rest of the world. Meanwhile, this progress can serve as a strong

boost to the necessary improvement of international trade rules to reflect new changes. To address

development deficits such as global income disparity, green gap and digital divide, Asian countries

need to strengthen policy coordination and alignment to achieve an balance of payments and debt

sustainability; drive joint development and adoption of green and digital technologies, and mobilize

financial resources regionally and globally; and deeply engage in the development of global rules on

green and digital governance so as to expand Asia’s leadership in green and digital endeavors. The

“Global Development Initiative” put forward by Chinese President set out new solutions for

addressing development deficit and building consensus on development in Asia and beyond.

We are convinced that Asian countries will continue to serve as a “stabilizer” in world economy

and a “booster” for multilateral cooperation. At Boao Forum for Asia (BFA), we will remain firmly

committed to promoting dialogues between Asia and the rest of the world, bridging differences and

enhancing global cooperation and development. This flagship report of Asian Economic Outlook and

Integration Progress has become an important vehicle for BFA to lead in-depth reflections and

stimulate broad discussions in Asia and beyond.

Secretary General

Boao Forum for Asia

Overview

001

Part I |

Asian Economic Outlook

Boao Forum for Asia Asian Economic Outlook and Integration Progress Annual Report 2022

002

Overview

003

Overview

Asian economic growth rebounded strongly in 2021.

According to the estimation of the International

Monetary Fund (IMF) in January 2022, the weighted

real GDP growth of Asian economies1 in 2021 would

be 6.3%, up 7.6 percentage points from 2020. Of the

47 Asian economies, all but Myanmar, Afghanistan,

Bhutan and Iran grew faster than in 2020. Measured

by purchasing power parity, Asia’s share in the world

economy in 2021 rose by 0.2 percentage points from

2020 to 47.4%.

On the employment front, overall unemployment

in Asia saw a decline, but still remained high. According

to the data of the International Labor Organization

(ILO), unemployment rate in Asia remained 5.15% in

2021, down 0.5 percentage point from 2020. In terms

of income, most economies continued their income

support policies from the previous year, but the

impact of the COVID-19 epidemic on the labor

markets remained significant. On the price front,

inflation continued to climb in Asia. In January 2021,

the region's overall inflation rate was 4.2%, but it rose

7.6% in December 2021, with inflation exceeding 10%

in several economies. In terms of foreign trade, Asia’s

overall performance was outstanding and the scale

hit a new high. In the first three quarters of 2021, Asia’s

trade in goods totaled USD11.9 trillion, up 29.7% year-

on-year. Asia has become increasingly attractive to

foreign investment. In 2021, foreign direct investment

in Asia reached USD696 billion, up 18% from 2020. In

financial markets, stock indices rose, most currencies

depreciated against the US dollar, bond yields climbed,

and real estate prices in most economies rose but risks

in the banking sector were generally under control.

1 Asian economies this report studies include Afghanistan, Armenia, Azerbaijan, Bahrain, Bangladesh, Bhutan, Brunei, Cambodia, China,

Georgia, India, Indonesia, Iran, Iraq, Israel, Japan, Jordan, Kazakhstan, DPRK (Democratic People’s Republic of Korea), the Republic of

Korea, Kuwait, Kyrgyzstan, Laos, Lebanon, Malaysia, Maldives, Mongolia, Myanmar, Nepal, Oman, Pakistan, Palestine, the Philippines,

Qatar, Saudi Arabia, Singapore, Sri Lanka, Syria, Tajikistan, Thailand, Timor-Leste, Turkey, Turkmenistan, United Arab Emirates,

Uzbekistan, Vietnam and Yemen.

Looking ahead to 2022, there are still many

factors affecting Asia's economic growth, and the

following six deserve our particular attention.

(1) The development of the epidemic. As new

variants such as more transmissible Delta and

Omicron continue to emerge, they are weakening the

effectiveness of the original vaccines. At the

beginning of 2022, a number of Asian economies are

seeing new peaks of the epidemic outbreaks, with the

Republic of Korea (hereinafter referred to as Korea, or

ROK), Vietnam, Japan, Turkey, Indonesia, Malaysia,

Thailand and Singapore seeing more than 10,000 new

cases every day.

(2) Geopolitical situation after the Russia-

Ukraine conflict. The Ukraine crisis has triggered

geopolitical changes in Asia and Europe, not only

increasing the fragility of Asia’s economic recovery,

but also fueling higher commodity prices and higher

inflation. Rising risk aversion will trigger capital

outflows from the region, add disturbances to its

financial markets, and increase the vulnerability of

Asian economic recovery. In addition, the conflict

between Russia and Ukraine may also affect global

energy supply and energy transformation.

(3) The pace and intensity of monetary

policy adjustments in the US and Europe. The

Federal Reserve has officially announced a quarter

increase in interest rates, and the European Central

Bank has signaled a gradual shift towards the

adjustment of monetary policy. The normalization of

the US and European macroeconomic policies will

inevitably have an impact on the global capital

markets, currency markets, commodity prices and

Boao Forum for Asia Asian Economic Outlook and Integration Progress Annual Report 2022

004

debt, including in Asian economies. Affected by factors

such as supporting economic recovery, stabilizing prices

and monetary contraction in developed economies,

Asian monetary policy will be faced with difficult

choices.

(4) The debt problem in some economies.

According to the Institute of International Finance

(IIF), the total global debt hit a record high of USD303

trillion in 2021. The debt to GDP (Gross Domestic

Product) ratio of emerging market countries was

approximately 248% in 2021, an increase of more than

20% from the pre-epidemic level. As global interest

rates rise and financial conditions tighten, surging

global debt could increase economic fragility and

hinder the pace of economic recovery. If global

interest rates rise faster than expected and economic

growth slows, the external debts of some emerging

markets and developing countries, including Asia,

may face the risk of default.

(5) Supply of key primary products. A rapid

economic recovery and global energy transformation

have widened the gap between the supply and

demand of resources and commodities, and thus

increased the negotiating power of resource-rich

countries such as Indonesia and Mongolia in Asia. This

may help ease the financial difficulties exacerbated by

the pandemic.

(6) Political regime changes in some Asian

countries. The Republic of Korea has just completed

the general election in March 2022, and the

Philippines will hold the presidential election in May.

The policy programs of the new governments may

bring new impacts on the strategic landscape of

political and economic pattern of Northeast Asia and

Southeast Asia.

Overall, the Asian economy will still be in the

process of recovery in 2022, but the growth rate may

be moderate. According to the IMF calculation, the

weighted real GDP growth is expected to be 5.2%, 1.2

percentage points lower than in 2021. In view of the

growing number of negative factors, this report

believes that Asian economic growth in 2022 is likely

to be lower than the IMF forecast. The IMF already

pointed out that in April, it will lower its global

economic growth forecast for 2022 to reflect the

impact of the situation in Russia and Ukraine.

Asian Economic Outlook and Policy

005

Chapter 1

Asian Economic Outlook and Policy

1.1 Economic Growth

Since 2021, the COVID-19 epidemic, the biggest

uncertainty affecting global economic growth,

including Asia, has seen a spike in daily new cases due

to the spread of mutated strains of the virus. In

January and April of 2021, the global daily new cases

peaked at more than 850,000, and still peaked over

700,000 in August. Discovered and named in

November 2021, the latest Omicron variant quickly

overtook the previously dominant Delta strain to

spread around the world, even reaching 3.93 million

new cases a day in January 2022. As a result, global

supply chains of vital goods such as chips, vaccines,

raw materials and energy tightened, limiting the

strength of demand-driven economic recovery. In

spite of this, some countries, based on the judgment

that “Omicron variant, while more transmissible,

carries a significantly lower risk of hospitalization than

the Delta strain”, began to let go of social control in

order to promote faster economic recovery, along

with the “base effect” of the world economy that was

caught in a deep recession in 2020, and sparked a

relatively strong rebound of economic growth in

2021. In January 2022, the IMF estimated the global

economic growth rate in 2021 to be 5.9%, significantly

higher than the negative 3.1% growth rate in 2020.

Due to the “base effect” of the lower growth rate in

2020, the growth rate in 2021 was also higher than the

pre-epidemic average level of around 3.5%. The Asian

1 Palestine, the Democratic People’s Republic of Korea and Syria are not available in the IMF database.

economy also showed the characteristics of recovery,

which is consistent with our report’s prediction last

year that “recovery of Asian economy is a high

probability event”. According to the IMF’s data-based

calculation, the weighted real GDP growth of Asian

economies in 2021 was 6.3%, significantly higher than

the negative 1.3% growth in 2020 and also higher

than the global level (see Figure 1.1). The trend of

Asia's share has been rising in the world economy

continues. In terms of purchasing power parity (PPP),

the ratio was 45.9%, 46.4% and 47.2% from 2018 to

2020, respectively, and was expected to rise further to

47.4% in 2021. In 2022, Asian economy will still be in

the process of recovery. Although the growth rate

may converge, it will still be higher than the predicted

world output growth rate of 4.4%. Its weighted real

GDP growth rate will be 5.2%, according to the IMF

calculation, and its share in the world GDP based on

the PPP will continue to slightly increase to 47.7%.

1.1.1 Economic Growth Rebound Strongly in

2021

Most Asian economies saw growth picking up in 2021.

Specifically, of the 47 Asian economies1 for which the

IMF has data, all economies performed better in 2021

than in 2020 except Myanmar, Afghanistan, Bhutan

and Iran, where the real GDP growth was lower. Only 4 of

the 47 Asian economies—Myanmar, Afghanistan, Bhutan

and Yemen—registered negative growth, and 15 Asian

economies grew by more than 5% in real terms.

Boao Forum for Asia Asian Economic Outlook and Integration Progress Annual Report 2022

006

By region, based on the IMF forecast 1 in

October 2021 and its January 2022 data update for

some Asian economies2, all Asian regional economies3

had higher growth rates in 2021 than in 2020. The

weighted real GDP growth rate of South Asia was

7.9%, the highest among all Asian regions. This is

related to the base period effect of the region's largest

negative growth (-5.6%) by region in 2020. India, the

largest economy in South Asia, grew by 9% in 2021, a

V-shaped recovery despite a 7.3% contraction in the

previous year, giving a strong boost to regional

growth. The Maldives, the region’s fastest growing

economy, grew by 18.9% in 2021, though this was on

top of a whopping contraction of 32.0% in 2020.

Afghanistan’s GDP fell by 9.7% in 2021, as a result of

the regime change. Another economy in the region

that also suffered negative growth like Afghanistan

was Bhutan, recording negative growth of 1.9% in

2021 for the second consecutive year. All other

economies in the region registered positive growth in

2021, albeit at less than 5%.

West Asia was the second among Asian regions

with a growth rate of 6.1%. Lebanon topped the

region's growth rankings for 2021 with a 35.5%

growth rate, but this is related to the country’s huge

“jump room” left by a sharp 25% negative growth in

2020. Turkey, the largest economy in the region,

achieved 11% real GDP growth in 2021, on top of 1.8%

growth in 2020, a remarkable achievement. Israel’s

growth reached 7.1% in 2021, ranking third in the

region. With the exception of Lebanon, Turkey and

Israel, the rest of the region saw a relatively weak

recovery in 2021, with growth below 4%. Among

them, Yemen was the only country in the region to

negative 2% in 2021, on top of a contraction of 8.5%

in 2020.

1 IMF. World Economic Outlook, October 2021.

2 IMF. World Economic Outlook, January 2022 Update.

3 According to the Boao Forum for Asia, Asia is divided into East Asia, South Asia, Central Asia and West Asia. East Asia includes Brunei,

Cambodia, China (Chinese mainland, Hong Kong Special Administrative Region of China, Macao Special Administrative Region of China

and Taiwan Province of China), Indonesia, Japan, the Democratic People's Republic of Korea, the Republic of Korea, Laos, Malaysia,

Mongolia, Myanmar, the Philippines, Singapore, Thailand, East Timor and Vietnam; South Asia includes Afghanistan, Bangladesh, Bhutan,

India, Maldives, Nepal, Pakistan and Sri Lanka; Central Asia includes Armenia, Azerbaijan, Georgia, Kazakhstan, Kyrgyzstan, Tajikistan,

Turkmenistan and Uzbekistan; West Asia (the Asian economies in the Middle East) includes Bahrain, Iran, Iraq, Israel, Jordan, Kuwait,

Lebanon, Oman, Palestine, Qatar, Saudi Arabia, Syria, Turkey, the United Arab Emirates and Yemen.

Economic growth in East Asia is slightly lower

than in West Asia, with a weighted real GDP growth

rate of 6.0% in 2021, but given that the region is the

only region in Asia not to slip into negative growth in

2020, its current growth rate is no less difficult to be

achieved than West and South Asia. The region’s

economy with the highest growth rate in 2021 was

Macao Special Administrative Region of China, at

20.4%. As the region’s largest economy, China

(excluding Hong Kong Special Administrative Region

of China, Macao Special Administrative Region of

China, and Taiwan Province of China) recorded 8.1%

growth, ranking second in the region. The Hong Kong

Special Administrative Region of China ranked third in

the region with 6.4% growth. Other economies with

growth above 5% were Singapore (6.0%), Taiwan

Province of China (5.0%) and Mongolia (5.2%). Among

other high-income economies in the region, Korea

grew by 4% and Japan by just 1.6%. The only economy

with negative growth in the region was Myanmar,

which contracted by hefty 17.9% in 2021.

Central Asia recorded the lowest growth among

Asian regions in 2021, with a weighted real GDP

growth rate of only 4.5%, but all economies in the

region achieved positive growth. On the basis of

negative growth in 2020, Georgia and Armenia

achieved a significant rebound, with a growth rate of

7.7% and 6.5% respectively in 2021, ranking first and

second in the region. By comparison, Uzbekistan, on

top of the 1.7% growth in 2020, achieved an even

harder 6.1% growth in 2021, the third-highest in the

region. Similarly, Tajikistan achieved 5% growth in

2021, on top of 4.5% growth in 2020. All other

economies in the region grew by less than 5% in real

terms in 2021, with Kazakhstan, the largest economy,

growing by 3.7%.

Chapter 1 Asian Economic Outlook and Policy

007

Figure 1.1 Weighted Real GDP Growth Rates of Asian Economies in Different Regions

Source: Calculations based on the IMF data.

Note: The 2021 data are estimates and the 2022 data are predictions.

1.1.2 Bailout or Stimulus Policies Remain in

Place

In order to maintain social resilience in the face of

epidemic shocks and promote economic recovery,

Asian economies continued to implement relief or

support policies of appropriate intensity in 2021, but

policy adjustment that emphasizes preventing risks

and reserving policy maneuvering space became

more obvious.1

In East Asia, China introduced relevant measures

to maintain necessary support for economic recovery

while taking into account the need for stable growth

and forestalling risks. First, it lowered the deficit-to-

GDP ratio to enhance fiscal sustainability. In 2021, the

deficit was RMB3.57 trillion, RMB190 billion less than

in 2020, with a 3.2% deficit ratio. The deficit was mainly

for increasing financial support for major strategic

tasks, and no special government bonds were issued

to leave room for addressing new risks and challenges.

Second, it continued to cut taxes and fees, reducing

burdens on market entities by over RMB700 billion in

the whole of 2011. Third, it expanded direct funds to

RMB2.8 trillion, an increase of RMB1.1 trillion over the

previous year, to improve the efficiency of

government funds. Fourth, transfer payments were

expanded, increasing general transfer payments from

the central to local governments by 7.8%.2 Japan’s

1 This section provides an overview of the fiscal policies of the major economies in each Asian region. The report has a special chapter on

monetary policies.

2 Ministry of Finance Research Group. Report on the Implementation of China’s Fiscal Policy in the First Half of 2021. http://www.

mof.gov.cn/zhengwuxinxi/caizhengxinwen/202108/t20210827_3748539.htm.

3 Economist Intelligence Unit. Country Report: Japan, Generated on February 24th 2022.

4 Economist Intelligence Unit. Country Report: the Republic of Korea, Generated on February 24th 2022.

Fumio Kishida cabinet announced an unprecedented

fiscal stimulus package of 55.7 trillion yen (USD488

billion) in November 2021, aimed at supporting post-

epidemic economic recovery and promoting a “new

type of Japanese capitalism”, including cash handouts

to households and support for small businesses.

Japan’s deficit-to-GDP ratio was projected to be 8.8%

in 2021.3 Korea continued to take measures to increase

government spending to promote industrial upgrading,

business investment, and support infrastructure,

public health and employment. In August 2021, the

Korean government proposed fiscal spending of

604.4 trillion won (USD518.4 billion) for 2022, up 8.3%

from the same period last year, and the measures

taken to support business and household incomes

during the epidemic will continue into the first half of

2022. The Korea deficit-to-GDP ratio was projected to

be 3.1% in 2021.4

In South Asia, the Indian government continued

to increase spending on health, livelihood and

economic stimulus in response to the impact of the

epidemic. The expenditure of the fiscal 2021-2022 was

INR34.83 trillion, higher than the previous fiscal year’s

expenditure of INR30.42 trillion, which was later

revised to INR34.5 trillion. The fiscal deficit for 2021-

2022 is projected to be 6.5% of GDP, lower than the

previous fiscal year's revised 9.5%, but still higher than

Boao Forum for Asia Asian Economic Outlook and Integration Progress Annual Report 2022

008

the previous fiscal year’s forecast of 3.5%. Of this, the

budget expenditure on health and welfare was

INR2.33846 trillion (USD30.7 billion), an increase of

137% from INR944.52 billion (USD12.95 billion) in the

2020-2021 fiscal year. The capital expenditure budget

rised by 34.5% to INR5.54 trillion (USD75.98 billion)

from INR4.12 trillion (USD56.5 billion) in the 2020-2021

fiscal year, mainly reflecting the Indian government's

efforts to boost economic growth by investing in

infrastructure development. India is projected to have

a deficit of 6.9% in the 2021-2022 fiscal year. 1

Pakistan’s 2021-2022 fiscal budget includes the most

expansionary package since 2018 aimed at supporting

economic growth through increasing capital

expenditure. The Pakistani government also announced a

reduction in indirect tax burdens in manufacturing

sectors such as textiles. Pakistan is expected to have a

deficit of 6.4% in the 2021-2022 fiscal year.2

In West Asia, Saudi Arabia's fiscal situation has

improved significantly due to the strong growth of its

oil revenues brought by high oil prices, with the deficit

ratio in 2021 expected to moderate to 2.3% from 10%

in 2020. According to the budget approved by the

Saudi government in December 2021, the country’s

total fiscal revenue is expected to increase by more

than 23% in 2022, while total expenditure is expected

to decrease by 3.5%. In 2022, Saudi Arabia is likely to

have a fiscal surplus for the first time in nine years, with

fiscal policy focusing on improving public services,

enhancing fiscal sustainability and supporting the

private sector. 3 Israel introduced expansionary fiscal

policies in response to the impact of the pandemic,

though its stimulus package of ILS180 billion (USD54.8

billion) ended in June 2021. The 2021-2022 fiscal

budget, approved in November 2021, proposed a

gradual reduction in epidemic related spending and

emphasized integration with long-term goals while

keeping the size of the fiscal deficit under control.

Israel’s deficit-to-GDP ratio is expected to be 4.6% in

1 Zhang Yuyan (Ed.). Analysis and Forecast of World Economic Situation in 2022. Social Sciences Academic Press, 2022.

2 Economist Intelligence Unit. Country Report: Pakistan, Generated on February 24th 2022.

3 Saudi Arabia Announces Budget 2022, with a Focus on Service Improvement Fiscal Sustainability and Private Sector Empowerment.

https://www.mof.gov.sa/en/mediacenter/News/Pages/News_12122021.aspx.

4 Economist Intelligence Unit. Country Report: Israel, Generated on February 24th 2022.

5 Economist Intelligence Unit. Country Report: Turkey, Generated on February 24th 2022.

6 Economist Intelligence Unit. Country Report: Kazakhstan, Generated on February 24th 2022.

7 Shavkat Mirziyoyev Approves the 2021 State Program. https://tashkenttimes.uz/national/6370-shavkat-mirziyoyev-approves-the-2021-

state-program.

8 Economist Intelligence Unit. Country Report: Kazakhstan, Generated on February 24th 2022.

2021, a significant contraction from 11.5% the previous

year. 4 Turkey also continues to implement rescue

subsidies, including the elimination of minimum

wage income tax, subsidizing credit, and offering non-

deliverable forward to help exporters mitigate

currency volatility. The Turkish government has also

increased its contribution to private sector workers’

pensions from 25% to 30% and announced a 50% rise

in the minimum wage in 2022. Turkey’s fiscal deficit is

projected to be 2.9 % in 2021.5

In Central Asia, Kazakhstan maintained an

expansionary fiscal policy in 2021, providing support

such as subsidized loans to small and medium-sized

enterprises to help them withstand financial risks

posed by the pandemic. In addition, the government

has continued to implement social support programs

that subsidize essential goods and services such as

fuel, utilities and housing. Kazakhstan’s deficit-to-GDP

ratio is projected to be 2.6% in 2021.6 Uzbekistan has

also introduced a series of expansionary fiscal policies

to support related domestic industries. For example,

in order to support domestic tourism, between March

1, 2021 and June 1, 2022, the government of

Uzbekistan introduced a travel subsidy mechanism

that subsidized 25% airline fares, 15% air and train

fares and 10% costs of accommodation services (hotel

services) for tour operators and travel agencies.7 Due

to increased government spending, Uzbekistan’s

deficit-to-GDP ratio is expected to be 5.5% in 2021, up

from 4.4% in 2020.8

1.1.3 Economic Growth Reaching the Pre-

Epidemic Level

Although continued economic recovery is highly

probable, there are still many factors affecting Asia’s

economic growth prospects and its economic

recovery still remains fragile. Specifically, the following

six factors deserve our attention.

(1) The evolvement of the epidemic. The virus

variants, their accelerated spread and serious imbalances

Chapter 1 Asian Economic Outlook and Policy

009

in vaccination have added great uncertainties to the

economic recovery in Asia. The Delta variant, first

identified in India in the first half of 2021, briefly

became the most widespread COVID-19 variant

globally, but it was quickly overtaken by the more

infectious Omicron variant, discovered in South Africa

in November 2021. The World Health Organization

(WHO) said nearly 90 million cases have been

reported to be related with the Omicron variant

within 10 weeks of its discovery, more than the total

number of cases reported in the full year of 2020.1 Of

the global samples collected by the WHO between

February 4 and March 5, 2022, 99.7% was Omicron

variants and only 0.1% was Delta variants.2 Studies

show that the BA.2 sub-variant of the Omicron variant,

which can also infect those people who have

previously been infected with the COVID-19 virus, is

about 1.5 times more infectious than BA.1 and is more

infectious to people who have received vaccination

and even after a booster, although fully vaccinated

people are less likely to spread the virus than

unvaccinated people. 3 Vaccination imbalances can

exacerbate the risk of transmission in the context of

virus mutations. WHO Director General Tedros Adhanom

Ghebreyesu stressed that despite the increasing

availability of vaccines, there is still a serious imbalance

in global vaccination. By March 8, 2022, 63.4% of the

global population has received at least one dose of

COVID-19 vaccine, but only 13.6% of the population in

low-income countries has received at least one dose.4

In 2022, global vaccine coverage may continue to

maintain a differentiated trend. Virus mutation will

continue to occur with a high probability, and the

emergency of more virulent and fast-spreading variants

cannot be ruled out. The WHO has also warned that

unequal distribution of vaccines could further lead to

the mutation of the virus, while new vaccines and

specific drugs are expected to make progress, their

coverage will be limited in the short term. Asia has a

large population and a dense distribution. In this

context, mutated strains of the COVID-19 virus will

present an ongoing challenge for Asia.

1 WHO. Director-General's opening remarks at the media briefing on COVID-19, 1 February 2022.

2 WHO. COVID-19 Weekly Epidemiological Update. Edition 82, published 8 March 2022.

3 Spencer Kimball. WHO says new Omicron BA.2 subvariant will rise globally, but scientists don’t know if it can reinfect people. Published

Feb 8 2022. https://www.cnbc.com/2022/02/08/who-says-omicron-bapoint2-subvariant-will-rise-globally.html.

4 Coronavirus (COVID-19) Vaccinations, Our World in Data. https://ourworldindata.org/covid-vaccinations.

5 IMF. Rising Caseloads, A Disrupted Recovery, and Higher Inflation. World Economic Outlook Update, January, 2022.

(2) Geopolitical situation after the Russia-

Ukraine conflict. On February 21, 2022, Russian

President Vladimir Putin signed a presidential decree

announcing the recognition of the “Donetsk People's

Republic” and the “Luhansk People's Republic”. After

that, the US announced its first batch of sanctions

against Russia. On February 24, Putin announced a

“special military operation” in the Donbas region in a

nationally televised address. Subsequently, the US and

European countries announced to increase sanctions,

including the expulsion of major Russian financial

institutions from the Society for Worldwide Interbank

Financial Telecommunications (SWIFT) system and

other severe measures. No matter what the final

outcome is, the Russia-Ukraine conflict will have a

profound impact on the geopolitical landscape of

Europe and even the world. The prospect of a

prolonged Russia-EU confrontation is emerging, and

the direct impact of 2022 will be extremely heavy. The

prices of energy, wheats and other bulk commodities

have risen in response to the possibility. The

international financial market has fluctuated sharply,

and inflationary pressure in major countries has risen

significantly. The global supply chain was further

damaged. Geopolitical progress continued, and

uncertainty about the growth prospects of Asian

economies increased.

(3) The pace and intensity of monetary

policy adjustments in the US and Europe. Entering

2022, the continuously rising trend of global inflation

continues. The IMF expects global inflation to be

higher and more persistent than it forecast in October

2021, with an average inflation rate of 3.9% in

advanced economies and 5.9% in emerging market

and developing economies in 2022 before possibly

subsiding in 2023. 5 Specifically, the inflation rate

reached 7.8% in the US in February 2022 and

exceeded 5% in the eurozone in January. The US and

European central banks have gradually changed their

tune as inflation has proved deeper and more

persistent than expected. The Fed and the European

Central Bank (ECB) stuck to their view that inflation

Boao Forum for Asia Asian Economic Outlook and Integration Progress Annual Report 2022

010

was temporary for most of 2021, but such a policy

tone began to change at the end of the year. On

December 15th, 2021, the Fed released the Statement

of the Federal Open Market Committee (FOMC)

meeting in December, announcing the acceleration

of Taper, reducing the amount of asset purchases per

month from USD15 billion to USD30 billion beginning

in January 2022, and executing the final round of asset

purchases from mid-February to mid-March 2022. ECB

President Christine Lagarde said that while there were

good reasons not to respond as forcefully as the Fed

did to soaring inflation, it “stands ready to respond

with monetary policy” if necessary. JPMorgan predicts

that oil prices could hit USD125 to USD150 a barrel by

2022 because of supply chains and the conflict

between Russia and Ukraine. If that happens, global

inflation could hit 7%, forcing monetary authorities in

most advanced economies to slam on the brakes,

which would raise the risk of global growth going to

zero, and making it hard for Asian countries to escape.

(4) Debt issue in some economies. Aggravated

imbalances in global economic recovery have put

emerging market and developing economies under

greater pressures of soaring debt. Debt burdens on

emerging market economies had already risen

sharply before the epidemic outbreak and were

exacerbated by the epidemic, as public debt caused

by increasing spending related to the epidemic

reached record levels, while tax revenues fell

sharply. In particular, tightened monetary policy in

advanced economies will pose challenges on central

banks and governments in emerging market and

developing economies. Higher returns elsewhere will

prompt capital outflows from emerging market and

developing economies, putting downward pressure

on their currencies and leading to higher inflation,

particularly in Asia. If these economies do not tighten

monetary policy accordingly, the debt burden of their

foreign currency borrowers, both public and private,

will rise further. In general, economies with a high

ratio of foreign debt, heavy dependence on external

financing, poor economic fundamentals and a history

of default have a higher risk of sovereign debt. At

present, the debt evolution trend of Turkey and other

economies deserves special attention.

(5) Supply of key primary products. The game

between major powers obtaining key resources and

energy, ensuring secure supply and leading the

transformation of energy structure has become

increasingly fierce, and the supply and demand of

global primary products will continue to be in an

unbalanced state. Stable supply of resources, energy

and other primary products offers an important

guarantee for and serves as a driving force of

maintaining long-term and stable economic growth.

However, as a result of the epidemic and the Russia-

Ukraine crisis, the supply of food, metal mineral

resources and other primary products may be

interrupted or insufficient, and the price of these

products may fluctuate greatly due to the

expectation. The economic and financial sanctions

imposed by the US on Russia and other countries,

especially secondary sanctions, may further aggravate

the imbalance between supply and demand of global

primary products, and the risk of price fluctuations

may become more prominent. Disturbed by the

sanctions on Russia, the London Metal Exchange (LME)

nickel price rose by 100%, breaking the USD60,000,

USD70,000, USD80,000, USD90,000 and USD100,000

marks successively on March 8, 2022, rising by 248%

in two trading days to continuously hit a record high,

which is the reality of the huge price fluctuations of

primary products under the influences of geopolitics.

In addition, the transformation of global production

mode to low carbon has also brought great pressure

to the supply-demand relationship of primary products,

especially mineral resources. Low-carbon economic

development will greatly increase demands for copper,

nickel, cobalt, rare earth and other raw materials,

intensifying competitions for these resources among

major economies.

(6) Regime changes in some economies. In

2022, some medium-sized powers in Asia, such as

Korea and the Philippines, have just completed the

general election or will hold the presidential election.

The domestic and foreign policy adjustments carried

out by the new governments will reshape the

international environment for the economic development

of Asia, especially East Asian economies, to a certain

extent, and lead to changes in the regional and

international landscape.

On the whole, the Asian economy is likely to

continue to recover in 2022, but the growth rate may

be lower than that of 2021. The weighted real GDP

growth of Asian economies is expected to be around

5.2% in 2022, down from 6.3% of 2021, according to

Chapter 1 Asian Economic Outlook and Policy

011

the IMF forecast. Among them, South Asia continues

to maintain the leading position in growth rate,

followed by East Asia. West Asia and Central Asia

ranked third and fourth. Considering the delay of the

epidemic and the severe impact of the conflict

between Russia and Ukraine on energy, industrial

chain and financial markets, it is expected that the

growth rate in Asia in 2022 will be lower than the IMF

forecast.

1.2 Employment and Income

In 2021, the recovery of the global labor markets,

including Asian economies, stalled under the impact

of the pandemic, and actually has made no progress

since the fourth quarter of 2020. According to a report

released by the International Labour Organization

(ILO), global working time in 2021 was significantly

lower than the pre-epidemic level in the fourth

quarter of 2019, with the four quarters of 2021 being

4.5% (equivalent to 131 million full-time jobs1), 4.8%

(equivalent to 140 million full-time jobs), 4.7%

(equivalent to 137 million full-time jobs) and 3.2%

(equivalent to 95 million full-time jobs) lower than the

fourth quarter of 2019.2 From a regional perspective,

Northern and Southern Europe and Western Europe

are closer to the pre-epidemic baseline in 2021, with

a gap of 3.3%. In contrast, the gap between the

unemployment rates in America and Africa and those

before the epidemic was larger, with 5.5% and 5.2%

respectively. In 2021, the average unemployment rate

in Asia was 5.15%.

1.2.1 Unemployment Remains High

The COVID-19 epidemic has had a clear and lasting

negative impact on employment around the world,

including in Asian economies. According to the data

from the ILO, the global unemployment rate of over

15 years old was 5.4% in 2019, before the epidemic

outbreak, but rose sharply to 6.6% in 2020 and

remained relatively high at 6.2% in 2021, significantly

higher than the average 5.6% from 2010 to 2019.

Global unemployment is expected to reach 207

million people in 2022, about 21 million higher than

the 2019 level. The Asia-Pacific region is in a similar

situation, with the unemployment rate rising from

1 Assuming every week has 48 working hours.

2 ILO Monitor. COVID-19 and the World of Work. Eighth Edition. 27 October 2021.

4.3% in 2019 to 5.4% in 2020, remaining high at 4.8%

in 2021 and expected to fall slightly to 4.6% in 2022.

As far as major regions in Asia are concerned, the

jobless rate is relatively high in Central Asia, West Asia

and Arab countries, followed by South Asia and East

Asia. Southeast Asia has relatively low unemployment.

Overall, unemployment in Asia is better than in the

world as a whole. Even during the pandemic, Asia's

unemployment rate was about 0.9 percentage lower

than that in the world. Specifically, the unemployment

rate in Central and Western Asia rose from 9.4% before

the pandemic to 9.7% in 2020, 9.8% in 2021, and is

expected to continue to rise to 10.0% in 2022. The

unemployment rate in Arab countries rose sharply

from 8.2% in 2019 to 9.5% in 2020, further to 9.6%

in 2021, and is expected to fall slightly to 9.2% in

2022, but still significantly higher than the pre-

epidemic level. In South Asia, the unemployment rate

before the epidemic was 5.2% in 2019, rising sharply

to 7.4% in 2020, but falling to 6.0% in 2021 but still

significantly higher than the pre-epidemic level, and

is expected to fall further to 5.6% in 2022, still 0.3

percentage points higher than the long-term average.

Employment in East Asia was relatively less affected by

the epidemic, with the unemployment rate rising

from 4.3% before the epidemic to 4.8% in 2020, then

falling to 4.6% in 2021 and expected to further fall to

4.5% in 2022. The unemployment rate in Southeast

Asia rose from 2.5% before the epidemic to 3.0% in

2020 and 3.1% in 2021, and is expected to be 3.1% in

2022.

The changes in youth unemployment rates in

the wake of the epidemic are of particular concern.

According to the ILO data, unemployment among

young people aged 15-24 has increased in every

major Asian region during the pandemic, especially in

the regions where unemployment rates were

previously at a relatively high level. For example, the

youth unemployment rate rose from 22.9% in 2019 to

25.6% in 2020 in Arab countries, from 18.4% to 20.1%

in Southeast Asia, and from 18.6% to 19.3% in Central

and West Asia. The average unemployment rate in

Asia is expected to be 4.97% in 2022, down 0.19

percentage points from 2021 (see Figure 1.2).

Boao Forum for Asia Asian Economic Outlook and Integration Progress Annual Report 2022

012

Figure 1.2 Unemployment Rates of Different Regions in Asia1

Sources: ILO, WESODATA.

1.2.2 Continuity of Income Support Policy

The negative impact of the epidemic on labor

incomes in Asian economies remained in 2021, but to

varying degrees among different economies. For

example, after 2021, the average nominal monthly

income growth rate of employees in Indonesia was

still negative year-on-year, but the degree of

contraction was decreasing, from the negative

growth rate of 3.1% in the first quarter to negative

0.5% in the third quarter. In Thailand, the average

nominal monthly income of employees in the first

quarter of 2021 showed a minor positive year-on-year

growth of 0.1%. The year-on-year growth rate of

average nominal monthly income of employees in

Vietnam in 2021 once turned positive in the second

quarter, but showed significant negative growth in

the second half of the year, with the growth rate of the

four quarters being -2.7%, 4.5%, -5.0% and -4.9%

respectively, indicating that the epidemic still has

great uncertainties for the labor market.

In order to promote the smooth transition from

emergency responses to the epidemic to consolidation

of recovery, Asian economies generally adopted or

continued previous supporting policies for enterprises

and workers in vulnerable links of industrial or supply

1 The data of unemployment rate in Asia are calculated by the author. Based on the unemployment rate and labor force data from ILO,

Wesodata, we calculate the unemployment population of 47 Asian economies respectively and sum up the total unemployed population in

Asia, and then divide it by the total working population in Asia to calculate the Asian unemployment rate from 2019 to 2022.

chains as well as vulnerable groups in society in 2021.

Of course, some adjustments have been made in

terms of policy intensity to adapt to changed situations.

While new measures of temporary social quarantines

have been introduced as a result of the Omicron

variant, most economies have stressed the need to

suspend social controls when the outbreak is brought

under control to mitigate the impact of the epidemic

on economic recovery.

China stresses the importance of protecting

market entities, especially micro, small and medium-

sized enterprises, as well as protecting employment

and people's livelihood. In April 2021, the State

Administration of Taxation issued a notice on the

implementation of the Administrative Measures for

Government Procurement to Promote the Development of

Small and Medium-sized Enterprises (SMEs), which

explained the reserved procurement quota specifically

for SMEs and the granting of preferential price

evaluation to small and micro enterprises. In June, the

Ministry of Finance issued the measures for the

management of SMEs special development funds,

stressing that the fund will mainly be used to guide

local governments and other relevant parties to

improve the public service system and financing

Chapter 1 Asian Economic Outlook and Policy

013

service system for SMEs, improve the development

environment for SMEs, break through the shortcomings

and bottlenecks restricting their development, and

support their high-quality development. In August,

the State Council issued the 14th Five-Year Plan for

Promoting Employment; In the same month, the

General Office of the Ministry of Civil Affairs issued the

Notice on Further Ensuring the Basic Living Conditions of

People in Difficulties Affected by Disasters and Epidemics,

which set forth the work requirements for “giving full

play to the role of social assistance in ensuring the

basic living conditions of people in difficulties affected

by disasters and epidemics”. In November, the General

Office of the State Council issued a notice on further

intensifying assistance to SMEs, which says that under

the background of “rising raw material prices,

insufficient orders, difficulties in recruiting workers

and rising labor costs, slow payment of receivables,

high logistics costs, the spread of COVID-19, power

shortages in some areas, and SEMs being faced with

increasing cost pressure and operation difficulties”,

the country will help SMEs to cope with the difficult

situation by increasing financial support, further

cutting taxes and fees, alleviating the pressure of

rising costs, strengthening power supply, supporting

enterprises in stabilizing and expanding employment,

and ensuring payment to SMEs. In December, the

State Council held an executive meeting to deploy a

number of measures to clear up the arrears of SMEs.

In 2021, Japan continued its policy on small and

medium-sized enterprises and regional economy and

provided some supports to market players and

households in addressing risks associated with

COVID-19. In January 2021, the Small and Medium

Enterprises Bureau of Japan’s Ministry of Economy,

Trade and Industry (METI) announced that it would

extend the application deadline for the "Maintaining

Enterprise Subsidy Program" and "Support Enterprise

Rent Subsidy Program" to February 2021 to give more

enterprises the opportunity to receive financial

support to deal with the impact of the epidemic. In

July 2021, the METI released the solicitation of

“Promoting Investment in Japan to Strengthen Supply

Chain Plan” (the second version), and selected 151

projects with a capital scale of 209.5 billion yen. This

project aimed at supporting enterprises to build new

factories in Japan and introduce new facilities for

important products and materials to enhance supply

chain flexibility, as a way of dealing with the

interruption of economic activities associated with

supply chains caused by the epidemic, to address the

vulnerability of supply chains due to the high

concentration of production bases/manufacturing

plants. For the sake of basic necessities for people’s

livelihood, it put special emphasis on ensuring

domestic production bases to ensure stable supply at

the time of emergency.

Under the impact of a new round of epidemic

outbreaks, Korea has implemented the strictest

epidemic prevention and control measures in the

capital area since mid-July 2021, which has severely

impacted the “face-to-face service industries”, such as

catering, accommodation and retail, but the recovery

momentum of its job market remains firm, demonstrating

the elasticity and resilience of Korean economy. The

Korea’s total employment in December 2021 fell by

497,000 a month earlier to 27.3 million, the first

monthly decline since September, but the impact of

the Omicron variant and social distancing rules

reintroduced since mid-December was relatively

manageable. On this basis, government subsidies

were phased out, although most of the resulting job

losses occurred in the public sector, particularly in

health care, social care and social security. By contrast,

employment levels in the private sector, particularly in

key employment sectors, such as manufacturing,

trade and hotels and catering, remained stable.

India has expanded its health and welfare

budget expenditure to INR2.3384.6 trillion (USD30.7

billion) for the 2021-2022 fiscal year, up 137% from

INR944.52 billion (USD12.95 billion) in the previous

fiscal year, including INR350 billion (USD4.8 billion) for

COVID-19 vaccines. India has also proposed to invest

INR1.97 trillion (USD27.02 billion) over the next five

years through the Production Linked Incentive (PLI)

Scheme to support and nurture global champions

in manufacturing, helping them to possess core

competencies and cutting-edge technologies and

promote scale expansion in key industrial sectors. The

one-card national food ration scheme has been fully

implemented, allowing migrant workers with the card

to apply for food rations anywhere in the country.

Social security has been provided to temporary

workers and platform workers, minimum wage and

employee national insurance has been extended to all

Boao Forum for Asia Asian Economic Outlook and Integration Progress Annual Report 2022

014

categories of workers, restrictions on the types of

employment for women (including night shifts) have

been removed, and single window management and

online reporting have been implemented to reduce

the compliance burden on employers. In terms of

financial inclusion, the “Stand Up India” program has

been adopted to reduce the loan margin to 15%, in

order to provide loans for agriculture-related activities

for lower castes, tribal people and women. The

budget allocation to the medium, small and micro-

sized enterprises sector was INR157 billion, more than

doubled that of the previous fiscal year.

Turkey started a gradual normalization period of

easing epidemic restrictions in early March 2021.

However, due to the ever-increasing number of cases

following the relaxation, the Turkish government

decided to re-impose a “total lockdown” from April 29

to May 17. Restrictions were eased between May 17

and June 1, with a night curfew from 9 pm to 5 am on

weekdays and a total lockdown on weekends. In

response to repeated epidemic outbreaks, Turkey’s tax

breaks were extended well into 2021. For example, by

the end of June 2021, the value-added tax (VAT) rate

for commercial rental services would be reduced from

18% to 8%, the VAT rate for education services would

be reduced from 8% to 1%, and the VAT rate for some

cultural and travel services would be reduced from 8%

to 1%. As of March 2021, Turkey had implemented a

package of financial support plans, including additional

medical costs, cash assistance and unemployment

benefits, as well as the guarantee of loans to businesses

and households, extended state-owned bank loans

service, deferred tax for enterprises, equity injections

into public banks, and value-added tax breaks for some

commodities (such as food and accommodation

services). The total size of the fiscal support package is

12.7% of the country’s GDP. In May 2021, the Turkish

Ministry of Finance announced a new supportive

lending program for small and medium-sized

enterprises, whose turnover fell by 25% in 2020. The

Ministry of Finance, in cooperation with the Union of

Chambers and Commodity Exchanges of Turkey

(TOBB) and the Credit Guarantee Fund, would provide

specialized loans to small and medium-sized

enterprises. Small and medium-sized enterprises with

an annual turnover of less than 1 million Turkish lira

1 World Employment and Social Outlook. Trends 2022. Geneva: International Labour Office, 2022.

(USD118,371) per household were eligible for loans of

up to 50,000 Turkish lira (USD5,918), while small and

medium-sized enterprises with an annual turnover of

more than 1 million Turkish lira but less than 10 million

Turkish lira (USD1.18 million) can benefit from a loan

scheme of up to 200,000 Turkish lira (USD23,674). The

12-month loan would carry an annual interest rate of

17.5%, with an option for a six-month payment waiver.

In short, the impact of the pandemic is likely to

be repeated and long-lasting. According to the ILO,

key indicators of the labor markets in the world’s

major regions are unlikely to return to pre-pandemic

levels in 2021, with a full recovery still far off. In

contrast, Asia-Pacific and Europe are expected to

come closest to their recovery targets, while Latin

America and the Caribbean have the most negative

outlook. The COVID-19 pandemic has changed the

structure of the labor market, and a return to the pre-

pandemic baseline is likely to be insufficient to

compensate for the damage caused by the pandemic.1

In this context of huge uncertainty over the pandemic,

how to strike a balance between protecting workers

and ensuring supply chain resilience and robust

economic recovery, and then implement economic

policies with strategic flexibility for this purpose pose

challenges Asian economies have to face in 2022.

1.3 Prices and Monetary

Policies

Under the influence of multiple factors such as the

imbalance between supply and demand, inflation in

Asian economies generally rose in 2021, especially in

some Central and West Asian economies. It is

estimated that inflation will remain high in Asian

economies in 2022. Affected by this expectation,

some economies will shift from loose monetary policy

to a tight one, but some may still maintain previously

loose policy unchanged, and some may will even

lower policy interest rates. More Asian economies are

expected to join monetary tightening in the future as

the US Federal Reserve accelerates policy tightening.

However, under the pressure of economic growth,

some Asian economies may face a difficult policy

tradeoff between maintaining growth and stabilizing

prices when making monetary policies.

Chapter 1 Asian Economic Outlook and Policy

015

1.3.1 Continuous Rise in Inflation

Asian economies continued seeing rising inflation in

2021. A simple average of inflation rates across 33

Asian economies shows that the region’s overall

inflation rate was 4.2% in January 2021, and rose to

7.6% in December 2021 (see Figure 1.3). By region,

inflation rates in Central Asia were high and rose fast,

exceeding 10%, many regional economies in this

region exceeded 10% by the end of 2021. The inflation

rate in South Asia also rose rapidly. By the end of 2021,

it returned to the high level of early 2020, while

inflation in West Asia continued its upward trend in

the second half of 2020, but remained generally stable

in the second half of 2021, and the inflationary

pressures in East Asia were generally low, but also saw

a large increase in 2021.

Figure 1.3 Inflation Trends of Asia

Source: CEIC, February 2022.

Note: The regional inflation rate is a simple average of the inflation rates of all regional economies. East Asia does not include Brunei,

Cambodia, the Democratic People’s Republic of Korea, Myanmar, East Timor; South Asia does not include Afghanistan, Bhutan,

Maldives; Central Asia excludes Turkmenistan; West Asia excludes Iraq, Kuwait, Lebanon, Syria and Yemen.

Inflation stayed high in Lebanon, Turkey, and

Iran in 2021, with Lebanon being one of the

economies that saw the highest inflation rates in the

world. Lebanon’s inflation rate dipped briefly in the

first half of 2021, but surged again in the second half

of the year, reaching 224.4% in December 2021.

Turkey’s inflation rate gradually climbed in 2021,

soaring to 36.1% in December and rising further to

48.7% in January 2022, the highest level since April

2002. Iran’s inflation rate always stayed at a high level,

after reaching close to 50% in April 2021, which began

to declined, but still remained at 35.2% in December

2021 and then rose slightly to 35.9% in January 2022.

In addition to the three countries, the inflation rates of

Mongolia, Pakistan, Sri Lanka, Azerbaijan, Georgia,

Kyrgyzstan and other countries rose rapidly in 2021

and exceeded 10% successively. Despite a slight

decline in 2021, Uzbekistan’s inflation rate remained

above 10% for the whole year. Kazakhstan’s inflation

has remained relatively high, above 8% since July

2021, and the high inflation has sparked a wave of

protests and political unrest in several parts of the

country.

Inflation in some economies has risen rapidly

from low levels and inflationary pressures continue to

mount. Driven by higher oil and food costs, Korea’s

inflation rate surged from 0.9% in January 2021 to

3.7% in December 2021, the highest since 2011 and

exceeding its central bank’s 2% target for nine

consecutive months. The situation is similar in Laos,

Myanmar, Singapore and Nepal. Inflation rate rose

from 2.0% in January 2021 to 5.3% in December 2021

Boao Forum for Asia Asian Economic Outlook and Integration Progress Annual Report 2022

016

in Laos and from 0.7% in January 2021 to 9.9% in

October 2021 in Myanmar. Singapore’s inflation rate

rose from 0.2% in January 2021 to 4.0% in December

2021, while Nepal’s inflation rate rose from 2.7% in

February 2021 to 7.1% in December 2021. Armenia's

inflation rate also rose from 1.6% in November 2020 to

9.6% in November 2021.

Although inflation rates have risen in some

economies, the overall inflation situation is under

control. In 2021, China's inflation rate showed a rising

trend amid fluctuations. China’s inflation rate reversed

the contractive trend of the previous two months,

turned from negative to positive in March 2021, rose

to 1.3% in May, then began to fall again. In October

2021, the inflation rate picked up again, rose to 2.3%

in November and fell to 1.5% in December. In the

whole of 2021, China's inflation rate was 0.9%,

generally running within a reasonable range.

Indonesia's inflation rate also peaked at 1.7% in May

2021 before falling, and then again soared to 1.9% in

December 2021, still within its central bank's inflation

target. Japan's prices returned to positive growth in

the second half of 2021, rising to 1.5% and 1.7% in

November and December 2021 respectively, but still

below the Bank of Japan's 2% inflation target. Malaysia

reversed the previous trend of falling prices in

February 2021, with inflation rising rapidly to 4.7% in

April and then falling to 3.2% in December 2021. Israel,

Jordan, the United Arab Emirates and other

economies also came out of deflation in 2021, and

even faced certain inflationary pressure. Driven by

rising food and fuel costs, India's inflation rate hit 6.3%

in May and June 2021, above the central bank’s 6%

inflation ceiling for two consecutive months. After

that, India’s inflation began to fall, but picked up again

from October 2021, reaching 5.6% in December 2021.

Inflationary pressures eased in some economies

in 2021. Vietnam’s inflation rate rose to 2.9% in May

2021, but gradually fell to 1.8% in December 2021. In

the whole of 2021, Vietnam’s inflation rate was 1.84%,

the lowest since 2016. After the end of deflation in

2020, Saudi Arabia’s inflation rate once rose rapidly,

reaching 6.2% in June 2021. As the base effect of the

1 In response to a drop in government revenues due to falling oil prices, the Saudi government raised the value-added tax rate from 5% to

15% from July 1, 2020, which led to a spike in Saudi inflation.

2 Gianluca Benigno, Julian di Giovanni, Jan J. J. Groen, and Adam I. Noble. A New Barometer of Global Supply Chain Pressures. The

Federal Reserve Bank of New York, Liberty Street Economics, January 4, 2022. https://www.newyorkfed.org/medialibrary/media/

research/blog/2022/2022_Barometer-Global-Supply-Chain-Pressures_data.

value-added tax introduced in July 2020 began to

weaken,1 the inflation rate dropped to 0.4% in July,

which had since picked up, but only 1.2% in

December 2021.

There are several reasons for rising inflation in

Asian economies. 1), The disruption of the supply

chain has led to rising inflation. Since the summer of

2021, the global COVID-19 epidemic has frequently

broken out, especially in Asia, which has forced the

governments to tighten prevention and control

measures, resulting in stagnation or the disruption of

the supply chain in Asia and beyond. At the same

time, some economies have politicized the issue of

supply chain security, further destabilizing the global

supply chain. According to The Global Supply Chain

Pressure Index (GSCPI) released by the Federal Reserve

Bank of New York, the global supply chain pressure

has been rising rapidly since 2021,2 which has caused

production stoppage, capacity reduction and serious

supply shortage, and directly pushed up the

enterprise production costs. 2), Strong demand has

driven up prices. In the face of the impact of the

epidemic, governments of all economies, including

Asian economies, have implemented large-scale

stimulus and supportive policies, accelerating

economic recovery and pushing up prices. 3), Due to

extreme weather events and energy and labor

shortages, international food prices have risen sharply.

According to the statistics of the UN Food and

Agriculture Organization (FAO), global food prices

continued rising in the second half of 2021, with the

global food price index rising from 113.5 in January

2021 to 135.7 in January 2022, an increase of 19.5%.

Soaring food prices have pushed up inflation in some

economies.

Inflation in Asian economies is expected to rise

in 2022 and even remain a high level in some

economies. The epidemic, together with the

international situation after the conflict between

Russia and Ukraine, are important variables affecting

the economic trend of the Asian region, and will

continue to have an impact on the stability of supply

chains in the region. Tight supply chains will bring

Chapter 1 Asian Economic Outlook and Policy

017

about price rise pressures. Global food and energy

prices are expected to remain high, driving consumer

prices to rise continuously through the producer-

price effect. But there are also factors that may cause

inflation to fall: (1) The economic growth of the Asian

economies is expected to decline from 2021, which

will ease the upward pressure on prices on the

demand side; (2) The policy stimulus intensity of the

economies inside and outside Asia will also be

reduced, and monetary policy in particular will be

tightened, which will help curb inflation.

1.3.2 Monetary Policy Faces Hard Choices

Some Asian economies have begun to tighten their

monetary policy amid rising inflationary pressures.

According to incomplete statistics, 12 Asian economies

raised interest rates a total of 33 times in total in 2021

(see Table 1.1). Changes in internal and external

conditions have promoted Asian economies to make

changes to their monetary policies. Internally, rising

prices have become the most immediate reason for

central banks to tighten monetary policies, while

growth rebounds sharply in most Asian economies in

2021 have also lowered their demand for monetary

policy stimulation. Externally, tightening of the

monetary policy by the Fed has also been a reason for

Asian economies to raise interest rates in response to

currency depreciation and capital outflow pressures.

Central Asian economies were the first to raise

interest rates in 2021, as they faced the largest

inflationary pressures. Kyrgyzstan has been in the

process of raising interest rates since 2020, and the

inflation rate still remained high in 2021. Therefore,

despite the great pressure of economic growth, the

central bank of Kyrgyzstan still raised the policy

interest rate from 5% to 5.5% in February 2021,

followed by a cumulative increase of 250 basis points

in April, July and November to 8%. Armenia and

Tajikistan also started raising interest rates in February

2021, raising rates six and four times respectively, each

with a total of 250 basis points. Georgia started to raise

interest rates in March 2021, with a total of 250 basis

points for four times in 2021. Kazakhstan's central

bank began raising benchmark interest rates for the

third time in a row in July 2021 in a bid to bring

inflation back to the target range.

Pakistan, Sri Lanka, Nepal and other countries in

South Asia also raised interest rates. In order to curb

inflation and currency devaluation, the Central Bank of

Pakistan raised the benchmark interest rate by 25 basis

points from 7% to 7.25% in September 2021, and then

sharply raised the interest rate by 150 basis points and

100 basis points respectively in November and

December. Meanwhile, in November 2021, Pakistan’s

central bank decided to increase the number of

annual monetary policy meetings from six to eight to

increase the flexibility of monetary policy to address

inflation. Sri Lanka and Nepal also raised interest rates

by 50 basis points each in August 2021 in response to

rising inflationary pressures. The ROK was the first

major economy in East Asia to raise rates, with its

central bank raising the benchmark interest rate from

a historic low of 0.5% to 0.75% in August 2021 and

further to 1% in November 2021.

Some central banks have cut interest rates to

stimulate their economies. Indonesia’s central bank

continued low interest rates and the loose monetary

policy in 2021, cutting the benchmark interest rate to

3.5% in February, the lowest level on record. To

support the development of the real economy, the

People’s Bank of China lowered the one-year loan

prime rate (LPR) by 5 basis points to 3.8% in December

2021, the first cut since April 2020. At the same time,

the central bank also lowered the reserve requirement

ratio for financial institutions by 0.5 percentage points.

Under the dual pressure of inflation and currency

depreciation, Turkey’s central bank continued the

process of raising interest rates in 2020 at the

beginning of 2021, raising interest rates by 200 basis

points to 19% in March 2021. However, in order to

stimulate economic growth, Turkey’s central bank cut

interest rates for four consecutive months from

September to December 2021, lowering the benchmark

interest rate by 500 basis points. Given severe inflation

and currency depreciation pressures, Turkey has less

room to cut interest rates further.

Some Asian economies have kept loose monetary

policies unchanged. Despite a continuous increase in

inflation, but considering the judgment that Japan’s

inflation in the long term will still be less than its 2%

inflation target, the Bank of Japan continued its loose

monetary policy, and even after the Fed’s decision to

cut large-scale asset purchases, Japan's central bank

governor, Haruhiko Kuroda said the bank has no

intention of exiting from its massive monetary stimulus

Boao Forum for Asia Asian Economic Outlook and Integration Progress Annual Report 2022

018

plan quickly. Despite the inflationary pressures, India’s

central bank has kept its benchmark interest rate

unchanged since May 2020 to support the economic

recovery in the wake of the severe impact of the

pandemic on the economy. Under minor inflationary

pressure, Saudi Arabia, Thailand, Vietnam and other

economies also kept policy rates unchanged in 2021.

Table 1.1 List of Benchmark Interest Rate Adjustments in Some

Asian Economies, 2021 (basis point)

1 2 3 4 5 6 7 8 9 10 11 12

Armenia 25 50 50 50 25 50

Azerbaijan 25 50 25

China −5

Georgia 50 100 50 50

Indonesia −25

Kazakhstan 25 25 25

Korea, Republic of 25 25

Kyrgyzstan 50 100 100 50

Nepal 50

Pakistan 25 150 100

Sri Lanka 50

Tajikistan 25 100 100 25

Turkey 200 −100 −200 −100 −100

United Arab Emirates 5

Source: CEIC and the central banks of involved economies, February 2022. The interest rate in China refers to Loan Prime Rate (LPR).

Several Asian economies have continued to

raise interest rates in 2022. On January 14, 2022, the

Bank of Korea announced a further increase in its

benchmark interest rate to 1.25%, returning to the

pre-COVID-19 levels. In addition, Sri Lanka,

Kazakhstan, Azerbaijan, Armenia and Kyrgyzstan also

implemented further rate hikes in January and

February 2022, respectively. Mongolia raised interest

rates in January 2022 for the first time since August

2016. However, the People’s Bank of China made an

even bigger cut in January 2022, lowering the one-

year lending interest rate further to 3.7%, a decline for

the second consecutive month. More Asian

economies are expected to join monetary tightening

as the risks of rising inflation still remain. In addition, the

accelerated withdrawal of monetary easing by the Fed

will also lead Asian economies to turn to monetary

tightening. However, monetary policy in some Asian

economies will also face a difficult tradeoff between

“supporting economic recovery” and “stabilizing

prices”.

1.4 Trade and Investment

With the recovery of the global economy, international

trade and investment resumed growth in 2021. Trade

and investment in Asia achieved a bigger rebound in

the year, and its share in global trade and investment

further increased. In 2022, international trade and

investment will still be affected by multiple factors,

but with continued liberalization and facilitation of

trade and investment, trade and investment in Asia is

expected to maintain a momentum of growth. On the

basis of the entry into force of the Regional

Comprehensive Economic Partnership (RCEP), China

and the ROK have applied to join the Comprehensive

Chapter 1 Asian Economic Outlook and Policy

019

and Progressive Agreement for Trans-Pacific Partnership

(CPTPP), accelerating regional economic integration in

Asia, which will greatly boost global economic

recovery of trade and investment in the post-COVID-

19 era.

1.4.1 Foreign Trade Hit a New High

Asia’s foreign trade in goods has grown rapidly and its

share of world trade in goods has further increased.

According to World Trade Organization (WTO)

statistics, trade in goods of Asian economies gradually

recovered from the third quarter of 2020, and the total

volume in the first three quarters of 2021 reached

USD11.9 trillion, up 29.7% from the same period in

2020, accounting for 36.8% of the world's total trade

in goods, up 0.6 percentage points from the same

period in 2020. Of the total volume, the total exports

of goods were USD6.14 trillion, an increase of 29%

year-on-year, and the total imports of goods were

USD5.74 trillion, up 30.5% year-on-year (see Figure

1.4). There are several reasons for the rapid growth of

Asia’s foreign trade in goods: (1) the global economic

recovery has greatly improved the external demand

of Asian economies; (2) the domestic economic

recovery of Asian economies has boosted the growth

of imports; (3) the rising prices of bulk and energy

products have boosted the exports and imports of

some economies. In addition, the weakening of the

epidemic prevention and control measures, currency

depreciations and the low base effect in 2020 have all

contributed to the rapid growth of Asian economies'

foreign trade in 2021.

Figure 1.4 Year-on-Year Growth Rates of Asia's Imports and Exports

Source: WTO, February 2022.

From an individual country perspective, China is

actively accelerating the building of a new development

paradigm of “dual circulation”, with domestic circulation

as the mainstay, and domestic and international

circulations supporting each other, and the scale of its

foreign trade has reached a new high. According to

the statistics of China Customs, China's total import

and export of goods exceeded USD6 trillion in 2021,

reaching a record high and remaining the world's

largest, with an increase of 30% compared with 2020.

Of the volume, the exports of goods reached USD3.36

trillion, up 29.9% from 2020, and the imports of goods

were USD2.69 trillion, up 30.1% from 2020. Japan's

foreign trade has also developed rapidly. According to

statistics from the Japan External Trade Organization

(JETRO), Japan's total imports and exports of goods in

2020 were USD1.53 trillion, up 20% year-on-year. Of

the value, exports grew by 18.5% year-on-year, thanks

mainly to export products, such as steel, automobile

and semiconductor manufacturing equipment, and

imports increased by 21.4% year-on-year due to the

significant increase in the prices of imported products

such as crude oil and liquefied natural gas. The ROK's

total imports and exports of goods exceeded USD1

Boao Forum for Asia Asian Economic Outlook and Integration Progress Annual Report 2022

020

trillion in 2021, up 28.5% from 2020, of which exports

of goods reached USD644.54 billion, up 25.8% year-

on-year, the largest increase since 2010 and the first

increase since the outbreak of COVID-19, and imports

of goods reached USD615.05 billion, up 31.5% year-

on-year.

On April 10, 2020, General Secretary of the Communist Party of China (CPC) Central Committee Xi Jinping

presided over the Seventh Meeting of the Financial and Economic Commission of the CPC Central

Committee, and proposed for the first time that China will build a new development paradigm with domestic

circulation as the mainstay, and domestic and international circulations mutually supporting each other. The

proposal was incorporated into the 14th Five-Year Plan for National Economic and Social Development of the

People's Republic of China and the Long-Range Objectives Through the Year 2035 on March 11, 2021. The building

of a new development paradigm based on “dual circulation” is a major strategic plan for China to promote its

open economy to a higher level in the context of significant changes at home and abroad. The new

development paradigm emphasizes the “dual circulation” of the domestic and international markets, not the

single circulation of the domestic market. Domestic circulation is the “great circulation” built on the unified

national market at home, not the “self-small circulation” pursued by every local region. Participating deeply

in the international circulation constitutes an essential part of China’s construction of a new development

paradigm. China is committed to open wider to the outside world at a higher level and make better use of

both domestic and international markets and resources. Domestic circulation and international circulation

reinforce and complement each other to promote mutual benefit, common prosperity and development

between China and the rest of the world.

The background under which China’s “dual circulation” development paradigm was proposed includes

three aspects: (1) to fend off the impact of the epidemic. COVID-19 is the most serious infectious epidemic in

the world in the past century, and also a major public health event that has spread faster and affected more

people since the founding of the People's Republic of China, and has proved to be the most difficult to

contain. The global transmission of the epidemic has had a far-reaching impact on both the internal and

external environment of China's economic development. (2) China has an inherent requirement for high-

quality economic development. Rapid development over the past four decades has made China the world's

second largest economy, and the contribution of external demand to its economic growth has significantly

decreased. After peaking at 67% in 2006, China's foreign trade dependence has fallen to 34% in 2021. As the

size of China's economy continues to grow, the path of relying on external demand to drive economic growth

is becoming more and more difficult to sustain. It is an inevitable choice for China to tap the potential of

domestic consumption and investment and shift economic growth to domestic demand. (3) economic

globalization has encountered headwinds. Because of strategic miscalculation on China-US relations by the

US, especially a trade war staged by the Donald Trump administration, there has been decoupling or partial

decoupling between China and the US in the areas of science and technology, economy and trade. China’s

traditional international economic circulation has obviously been weakened and even blocked, and the

global industrial and supply chains have been disrupted, pushing China to make a strategic choice for the

“dual circulation” economic development paradigm.

Since the “dual circulation” development paradigm was put forward, China’s economic development

has achieved remarkable results, which are mainly reflected in the following aspects:

First, the main role of “domestic circulation” has been strengthened. In 2021, China accelerated the

development of a complete domestic demand system, which plays a prominent role in driving economic

growth. Final consumption expenditure and total capital formation contributed 5.3 percentage points and

1.1 percentage points to economic growth respectively, and the contribution of domestic demand to

economic growth reached 79.1%, up 4.4 percentage points over the previous year. Specifically, on the one

Column 1.1 Dual Circulation of China’s Economy

Chapter 1 Asian Economic Outlook and Policy

021

hand, the scale of market sales has expanded, and residents' consumption has been steadily upgraded in the

midst of sustained recovery. Retail sales of consumer goods totaled RMB44.1 trillion in 2021, up 12.5% and up

3.9% on average over the past two years. Upgraded consumer demand continued to be released, with retail

sales of gold, silver and jewelry, and cultural and office supplies above the designated size increasing by 29.8%

and 18.8% respectively. The efforts to foster new types of consumption have accelerated, with online retail

sales reaching RMB13.1 trillion last year, up 14.1% from a year earlier. On the other hand, fixed asset investment

maintained growth, and the growth momentum of manufacturing investment in particular was good.

Investment in fixed assets (excluding rural households) reached RMB54.5 trillion in 2021, up 4.9%, with a two-

year average growth of 3.9%. Of this, infrastructure investment increased by 0.4%, manufacturing investment

by 13.5%, and real estate development investment by 4.4%. The country supported faster recovery of

manufacturing investment and private investment, and launched trials for real estate investment trusts (REITs)

in the infrastructure sector. Private investment reached RMB30.8 trillion, an increase of 7.0% year-on-year,

accounting for 56.5% of total investment.

Second, both domestic and international circulations continue to improve quality and efficiency. In the

face of the complex and grim international situation, China has unswervingly opened wider to the outside

world, and the positive momentum of foreign trade and foreign investment has been further consolidated.

In 2021, the net exports of goods and services contributed 1.7 percentage points, or 20.9%, to China’s

economic growth. Specifically, on the one hand, imports and exports continue to maintain rapid growth. In

2021, China successfully held major exhibitions such as the China Import and Export Expo, the China Import

and Export Fair, the China Service Trade Fair and the China Consumer Goods Fair, and its foreign trade grew

rapidly. The total value of imports and exports reached RMB39.1 trillion for the year, up 21.4%, of which exports

grew by 21.2% and imports by 21.5%, with a trade surplus of RMB4.368,7 trillion. Imports and exports of goods

denominated in the US dollars topped USD6 trillion for the first time in history, up 30% from the previous year,

the fastest growth since 2011. Among them, the import and export of general trade increased by 24.7%,

accounting for 61.6% of the total import and export volume, an increase of 1.6 percentage points over the

previous year. The import and export of private enterprises increased by 26.7%, accounting for 48.6% of the

total import and export volume, 2 percentage points higher than the previous year. On the other hand, the

scale of foreign investment utilization reached a new high. In 2021, China continued to shorten the negative

list for foreign investment, improve cross-border trade and investment facilitation, and make positive progress

in a number of landmark projects, with actual foreign investment in the year reaching RMB1.1 trillion, an

increase of 14.9% year-on-year. The number of freight trains between China and Europe has increased and

efficiency improved, with 15,000 trains running in the whole year, an increase of 22%.

Third, regional economic and trade cooperation has deepened. On January 1, 2021, the Regional

Comprehensive Economic Partnership (RCEP) entered into force, marking the launch of a free trade area with

the world's largest population, largest economic scale and greatest development potential. the RCEP will

enhance China's ability to make the best use of “two markets and two resources”, become a bridge and bond

linking the “dual circulations” of domestic and international markets, and inject new impetus to China's and

the world's economic growth. On December 30, 2020, negotiations on the China-EU Comprehensive

Agreement on Investment (CAI), regarded as an "important milestone" in China-EU relations, were completed

as scheduled. Although the European parliament has temporarily frozen discussions about the ratification of

the agreement, it is undeniable that the taking effect of the agreement will provide more opportunities and

system guarantee for bilateral investment, and will be of great significance to China’s efforts to build a new

development paradigm, promote global trade and investment liberalization and facilitation, and build an

open world economy.

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022

Since March 2021, India's foreign trade has

witnessed rapid growth, and its growth rate has

slowed down later, but still remained double digits. In

2021, India's total import and export of goods reached

USD964.79 billion, an increase of 49.1% compared

with 2020, among which the export of goods was

USD392.18 billion, an increase of 42% year-on-year,

and the import of goods was USD572.62 billion, an

increase of 54.4% year-on-year. Vietnam's import and

export of goods also performed well. According to

Vietnamese customs statistics, Vietnam’s total import

and export trade reached USD668.55 billion in 2021,

an increase of 22.6% compared with 2020, of which

exports accounted for USD336.31 billion, up 19%, and

imports accounted for USD332.23 billion, up 26.5%.

The record high trade volume has also made Vietnam

one of the world’s 20 largest trading economies. In

2021, Thailand's total import and export volume

reached USD538.77 billion, an increase of 23.1%

compared with 2020, of which the export volume

accounted for USD271.17 billion, an increase of 17.1%,

and the import volume accounted for USD267.6

billion, up 29.8%. The total value of Turkey's foreign

trade in 2021 was USD496.72 billion, up 27.6%

compared with 2019, with exports growing by 32.8%

and imports growing by 23.6%. Pakistan's total import

and export of goods exceeded USD100 billion in 2021,

up 48.7% compared with 2020, of which exports grew

by 28.8% and imports grew by 58.3%.

Asia’s trade in services has also rebounded

sharply. According to WTO statistics, starting from the

second quarter of 2021, Asian economies saw a sharp

year-on-year growth in trade in services, with exports

and imports growing by 26% and 22% respectively. In

the third quarter of 2021, Asia’s trade in services

continued to maintain a rapid growth momentum,

with exports and imports growing by 26% and 21%

respectively (see Figure 1.5). The recovery in Asia's

trade in services has largely kept pace with the rest of

the world, with export growth outpacing that of

North America and roughly matching that of Europe,

but import growth being lower than the world

average. Compared with trade in goods, the recovery

of trade in services in Asia has been slower and softer.

Figure 1.5 Year-on-Year Growth Rates of Trade in Services in Asia

Source: WTO, February 2022.

Chapter 1 Asian Economic Outlook and Policy

023

From the perspective of individual economies,

trade in services increased significantly in most

economies in 2021 compared with 2020. According to

United Nations Conference on Trade and Development

(UNCTAD) estimates, Turkey's total trade in services

was USD61.88 billion in the first three quarters of 2021,

an increase of 49.8% from a year earlier, with exports

growing by 61.2% and imports growing by 33%,

making it the fastest growing economy in Asia in

terms of trade in services. During the same period, the

ROK’s imports and exports of service trade reached

USD171.71 billion, up 20.5% compared with 2020,

with exports up 31.9% and imports up 11.1%. India,

Bangladesh, Israel and Pakistan all saw double-digit

growth in total trade in services in the first three

quarters of 2021. In 2021, China’s trade in services

continued to grow rapidly, with total imports and

exports of services reaching RMB5.3 trillion, up 16.1%

year-on-year, of which service exports totaled

RMB2.54 trillion, up 31.4%, and service imports

reached RMB2.75 trillion, up 4.8%, with the service

trade deficit falling to the lowest level since 2011.

Japan, Singapore, Thailand, the Philippines and

Indonesia also registered growth to some extent in

trade in services in the first three quarters of 2021.

But there are also some economies that have

suffered contraction in their trade in services. In the

first three quarters of 2021, Malaysia's total trade in

services contracted slightly by 1.1% compared with

the same period in 2020, with exports of services

decreasing by more than 10%. Vietnam's total trade in

services fell by 14.8% year-on-year in the first three

quarters of 2021, while exports shrank as high as

56.7%. Laos was the Asian economy with the most

severe contraction in trade in services, with a decline

of 63.9% in the first three quarters of 2021 from a year

earlier, including a 73.8% drop in exports and 55.5%

drop in imports. Sri Lanka, Cambodia and other

countries also saw a substantial decline in trade in

services. However, on a quarterly basis, most Asian

economies saw year-on-year growth in trade in

services in the second quarter of 2021, indicating an

improvement in their trade in services for the whole

of 2021.

Asian economies have made rapid progress in

promoting foreign trade liberalization within and

outside the region. The RCEP entered into force on

January 1, 2022, marking the launch of the world’s

largest free trade area. Covering all aspects of trade

and investment liberalization and facilitation, the

RCEP will give a strong impetus into trade and

investment flows within the Asia-Pacific region and

help build a more open and inclusive world economy

that benefits all economies. In the meanwhile, there

were several free trade agreements involving Asian

economies that took effect in 2021, including Japan-

UK Free Trade Agreement, ROK-UK Free Trade

Agreement, Singapore-UK Free Trade Agreement,

Turkey-UK Free Trade Agreement, Vietnam-UK Free

Trade Agreement, China-Mauritius Free Trade Agreement,

and India-Mauritius Free Trade Agreement, etc. In

addition, China and the ROK also applied to join the

Comprehensive and Progressive Trans-Pacific Partnership

(CPTPP) in 2021, which will further promote economic

integration in the Asia-Pacific region.

1.4.2 Foreign Investment Becomes More

Attractive

Foreign direct investment flowing to Asian economies

has increased significantly. According to UNCTAD, the

volume of foreign direct investment (FDI) inflows to

Asian economies in 2020 amounted to USD588

billion, up 5.2% from 2019 and accounting for 63.3%

of total global FDI inflows, up 25.3 percentage points

from 2019 (see Figure 1.6). The FDI inflows to Asia are

expected to grow significantly in 2021. In January

2021, UNCTAD released its Global Investment Trends

Monitor report, which predicted that the global FDI in

2021 would reach USD1.65 trillion, an increase of 77%

from 2020 and exceeding the scale of 2019. It also

predicted that Asia would attract USD696 billion FDI

in 2021, up 18% from 2020.

From a specific perspective, most Asian economies

have seen a significant increase in FDI inflows. Driven

by strong FDI in the service sector, China remained the

world's leading investment destination in 2021, with FDI

inflows reaching USD173.48 billion, up 20.2% from

2020, according to China’s Ministry of Commerce. In

the first three quarters of 2021, the FDI flowing to

Japan reached USD21.44 billion, an increase of 109.1%

from the whole year of 2020, according to the Japan

External Trade Organization. According to data

released by the ROK’s Ministry of Trade, Industry and

Resources, the country attracted an FDI inflow of

Boao Forum for Asia Asian Economic Outlook and Integration Progress Annual Report 2022

024

USD29.51 billion, up 42.3% year-on-year, and the

actually used FDI was USD18.03 billion, up 57.5% year-

on-year, reversing the declining trend in previous two

consecutive years.

Figure 1.6 FDI Inflows in the World and Asia

Source: UNCTAD, February 2022.

Most Southeast Asian economies saw an

increase in their FDI inflows in 2021. According to the

Thailand Board of Investment (BOI), Thailand attracted

455.3 billion baht of foreign investment in 2021, about

2.7 times that in 2020. According to the Malaysian

Investment Development Authority (MIDA), Malaysia

attracted 106.136 billion ringgit of foreign direct

investment in the first three quarters of 2021, up

135.5% from the same period in 2020 and even 65.3%

from the whole of 2020. According to the Ministry of

Planning and Investment, foreign capital attracted to

Vietnam reached USD31.15 billion in 2021, up 9.2%

from 2020. According to the Indonesian Ministry of

Investment, Indonesia attracted USD31.09 billion FDI

in 2021, up 8.5% from 2020.

The FDI flowing to Saudi Arabia has also

doubled, thanks to an increase in cross-border

mergers and acquisitions. According to the Saudi

Investment Ministry, Saudi Arabia attracted 65.2

billion riyals of foreign investment in the first three

quarters of 2021, 4.9 times higher than the same

period in 2020. The UNCTAD expects foreign

investment flowing to Saudi Arabia would reach

USD23 billion in 2021. The FDI inflows to the United

Arab Emirates (UAE) are also expected to increase

significantly in 2021.

South Asia was the only region in Asia that saw

a decline in FDI inflows in 2021. According to the

UNCTAD, the FDI inflows to South Asia in 2021 are

expected to fall to USD54 billion, down 24% from

2020. Among these, the FDI inflows to India are

expected to decrease by 26%, mainly due to a decline

in cross-border Mergers and Acquisitions (M&A) deals.

According to an estimate by the State Bank of

Pakistan, the FDI attracted to Pakistan would fall to

USD5.94 billion in 2021, down 7.9% from 2020.

At the same time, Asian economies also

remained an important source of foreign investment

in the world. According to the UNCTAD, the global

outward direct investment was USD1.22 trillion in

2020, down 39.4% from 2019. Among them, the

outward direct investment of Asian economies was

USD509.23 billion. Although it decreased by 15.1%

compared with 2019, it still accounted for 68.8% of the

total outward direct investment, an increase of 19.7

percentage points compared with 2019 (see Figure

1.7). With the recovery of the economy, Asian

economies are expected to see a return to growth in

their outward direct investment in 2021.

By specific economies, China's outbound investment

Chapter 1 Asian Economic Outlook and Policy

025

continued to maintain steady growth in 2021, with a

total outbound FDI volume of USD145.19 billion, up

9.2% year-on-year. Chinese outward investors made a

total of USD113.64 billion of non-financial direct

investment in the 6,349 overseas enterprises of 166

countries and regions in 2021, an increase 3.2% year-

on-year. After a sharp decline in 2020, Japan's outward

FDI also recovered in 2021. According to the Japan

External Trade Organization (JETO), Japan's outward

direct investment in the first three quarters of 2021

was USD124.9 billion, up 8% from the whole of 2020.

Starting from the second quarter of 2021, the ROK’s

outward direct investment reversed its previous

negative growth and reached USD45.28 billion in the

first three quarters of 2021, up 17.5% year-on-year,

according to the ROK Ministry of Strategy and Finance.

Figure 1.7 FDI Outflows in the World and Asia

Source: UNCTAD, February 2022.

In 2021, Asian economies adopted a series of

policy measures to attract and promote inbound and

foreign investment. China continued to open up at a

higher level and further shorten the negative list for

foreign investment in 2021. The 2021 negative lists for

foreign investment in China and in pilot free trade

zones have been shortened to 31 items and 27 items,

or by 6.1% and 10% respectively, and the areas outside

the negative lists are put under management in

accordance with unified principles for domestic and

foreign investment, and foreign-invested enterprises

are given national treatment. In February 2021, the

Indonesian government promulgated a presidential

decree on investment and business fields, making

fundamental changes to the foreign investment

access system mainly based on the negative list

management model, replacing it with a list-based

access model that encourages investment, further

opening up relevant industries for foreign investment

and reducing foreign investment restrictions. In June

2021, the Turkish government released Turkey’s

Foreign Direct Investment Strategy (2021-2023),

which aims to improve the quantity and quality of the

FDI in Turkey, especially aims to attract knowledge-

intensive, high value-added investments, while

creating high-quality jobs.

Asian economies have continued to strengthen

international investment cooperation. By 2021, Asian

economies had participated in 950 investment

agreements that contain investment provisions, of

which 926 were on a bilateral basis. In 2021, Asian

economies signed a number of major international

investment agreements with economies within and

outside the region, including Georgia-Japan Bilateral

Investment Agreement, the UAE-North Macedonian

Bilateral Investment Treaties, Israel-ROK Free Trade

Agreement, Angola-Turkey Bilateral Investment Agreement,

the Bilateral Investment Agreement between the Democratic

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026

Republic of Congo and Turkey, and the Bilateral

Investment Agreement between the Democratic

Republic of Congo and the UAE, etc.

1.5 Financial Markets

In 2021, stock markets in most Asian economies were

on an upward trend, with some stock market indexes

registered large gains. More Asian economies saw

their currencies appreciated more than depreciated,

even with large appreciations of some currencies. Ten-

year bond yields rose in most Asian economies, and

property prices also rose in the vast majority of Asian

economies, and by a large margin in some cases. Non-

performing loan ratios increased in the banking sector

in most Asian economies, but capital adequacy ratios

were good and risks were generally manageable.

1.5.1 Stock Indexes Generally Rise

Stock markets in most Asian economies rose in 2021,

with some stock market indexes receiving large gains.

According to the CEIC database, stock indexes rose in 28

Asian economies and fell in 7. Mongolia’s TOP20 index

rose the most, by 130.3% (see Figure 1.8), followed by

Syria’s Damascus Stock Exchange weighted index, a

rise of 116.4%, and then by Sri Lanka's Colombo Stock

Exchange (CSE) index, gaining 80.5%. In contrast,

Cambodia’s Cambodia Securities Exchange (CSX)

composite index fell the most, by 26.9%, followed by

the Hang Seng index of Hong Kong Special Administrative

Region of China, a fall of 14.1%, and then China's China

Security Index (CSI) 300 index, a fall of 5.2%.

Meanwhile, the ROK’s Kospi rose by 3.6%, Japan's

Nikkei 225 rose by 4.9% and India's Sensex rose by

22.0%. Ample global liquidity and a modest economic

recovery driven by the progress in Corona Virus

Disease 2019 (COVID-19), vaccination were the main

reasons for the better performance of most Asian stock

markets.

Due to its better economic development and

effective epidemic prevention and control, China's

macroeconomic policies have remained relatively

tightened. China has also carried out drastic reforms

in real estate, Internet, education training, energy and

other fields, resulting in large fluctuations in the stock

prices of enterprises in related industries during the

transformation process. The occasional cluster outbreaks

of the novel coronavirus variants in China have also

affected the recovery pace of some sectors such as

the service sector, which ultimately hit the stock

market. The short-term influx of foreign capital into

Mongolia’s smaller stock market was the main reason

for its surge. Bolstered by strong private sector

performance and good corporate earnings and

expectation in a loose monetary environment, Sri

Lanka's stock market index continued to rise to a

record high.

Recently, conflicts broke out between Russia

and Ukraine. Regional tensions continued, and

geopolitical risks rose. The sanctions imposed by the

US and its allies on Russia have been comprehensively

upgraded. The commodity market prices have

fluctuated violently, seriously affecting the global

industrial chain and supply chain. Inflation in

developed economies is hitting new highs and the

Federal Reserve has announced a 25 basis point

increase in interest rates. These influencing factors

intersected and superimposed with each other. Market

risk appetite decreased and risk aversion increased

significantly. The withdrawal of international capital

accelerated, and the capital markets of Asian economies

suffered a great impact. Compared with the closing

price of the last trading day in 2021, as of the closing

price on March 15, 2022, China's CSI 300 index fell

19.4%, Hong Kong Hang Seng Index fell 21.3%, Hong

Kong Hang Seng technology index fell 38.8%, Japan's

Nikkei225 index fell 12.0%, Korea composite index fell

12.0%, India Mumbai Sensex index fell 4.3%, and Iran's

Tehran Stock Exchange’s Price and Dividend Index

(TEDPIX) index fell 4.6%. In addition, the US Dow Jones

Industrial Average fell 7.7%, the National Association of

Securities Dealers Automated Quotations (NASDAQ)

composite index fell 17.2%, the UK Financial Times

Stock Exchange (FTSE) 100 index fell 2.8%, the German

Deutscher Aktien Index (DAX) index fell 12.4%, the

French Cotation Assistée en Continu 40 (CAC40) index

fell 11.2%, and the European Stoxx 50 index fell 13.0%.

Compared with the stock markets of the US and

Europe, the stock markets of Asian economies have

suffered significantly more. Among them, Hong Kong

Hang Seng Index and Hong Kong Hang Seng

technology index have fallen into a technical bear

market, and China's CSI 300 index also took a hit. China

Chapter 1 Asian Economic Outlook and Policy

027

needs to encourage capital to enter the market,

increase market liquidity, and stabilize market

confidence to prevent systemic financial risks caused

by stock market risk spillover.

Figure 1.8 Stock Index Rises and Falls of Some Asian Economies, 2021

Note: Rising and falling percentage of stock indexes = (closing price of the last trading day in 2021 - closing price of the last trading day in

2020) *100%/ closing price of the last trading day in 2020. The Chinese data is the CSI 300 index.

Source: CEIC Database, February 2022.

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1.5.2 Depreciations of Most Asian Currencies

Against the Dollar

More Asian economies saw depreciations of their

currencies other than appreciations, even with large

depreciations of some currencies. In terms of home

currency-dollar exchange rates (the direct pricing

method), five economies in the region saw their

currencies appreciated in 2021, 23 saw their currencies

depreciated, and two saw their currencies unchanged

due to being pegged to the dollar, according to CEIC

data (see Figure 1.9). Among the appreciating

currencies, Armenia's dram rose the most against the

dollar, about 8.1%, followed by Georgia's lari, the

second, about 5.5%, and then by China's yuan, the

third, about 2.3%. In contrast, most economies have

seen their currencies depreciated. The Turkish lira fell

the most against the dollar, about 76.8%, followed by

Myanmar’s kyat, the second, about 33.8%, and then by

Laos' kip, the third, about 19.1%. In addition, the

Japanese yen depreciated about 11.6% against the

dollar, the Korean won depreciated about 9.4%

against the dollar, and the Indian rupee devalued

about 1.9% against the dollar. The reasons for the

currency depreciations in most Asian economies are

as follows: first, the currencies of most Asian

economies appreciated relative to the US dollar in

2020, resulting in a high base; second, in 2021, the US

and other developed economies recovered quickly,

strengthening the appreciation expectation of the

US dollar. As a result, most Asian currencies

depreciated against the dollar. The Turkish lira suffered

its worst performance in nearly two decades, making

it the worst-performing currency of all emerging

market economies. On the one hand, in addition to

the impact of the epidemic, Turkey is facing serious

inflation and other problems. In particular, its

Consumer Price Index (CPI) in December 2021 rose

36.08% compared to the same period in 2020, hitting

a new high since September 2002. On the other hand,

the US dollar appreciation expectations continue to

heat up, leading to a continuous rise in the dollar

index. In addition, Turkey's complex geopolitical

relations have led to the accumulation of geopolitical

risks and other factors, thus resulting in the substantial

devaluation of the Turkish lira against the US dollar.

Figure 1.9 Exchange Rates of Some Asian Currencies Against the

US Dollar, 2021 (direct quotation method)

Sources: CEIC database, January 2022.

Chapter 1 Asian Economic Outlook and Policy

029

In 2021, the yuan and the US dollar showed a

rare synchronous strengthening, with the yuan

generally rising against the dollar. The main reasons

were: (1) China’s strong export led to strong demand

for settlement of foreign exchange. Statistics from the

General Administration of Customs showed that the

total value of China's trade in goods in 2021 was

RMB39.1 trillion (USD6.05 trillion), a record high, of

which exports grew by 21.2%. Thanks to strong goods

exports, banks' surplus on foreign exchange settlement

and sales averaged USD25.6 billion a month in 2021,

about 2.1 times the monthly average in 2020 and the

highest since 2014. Among them, the current account

surplus of foreign exchange settlement and sales

averaged USD18.7 billion a month, becoming the

main source of banks’ foreign exchange settlement

and sales surplus. This fully reflects the phenomenon

that strong trade leads to a strong exchange rate.

(2) the renminbi-denominated assets became more

attractive and foreign capital inflows reached a record

high. Statistics from China's Ministry of Commerce

shows that in 2021, the actual use of foreign investment

in China reached USD173.48 billion (excluding banking,

securities and insurance), up 20.2% year-on-year and

hitting a new record high. Statistics from China's State

Administration of Foreign Exchange shows that

foreign investors increased their holdings of domestic

bonds by USD166.6 billion, making renminbi assets an

important part of foreign capital allocation. (3) China’s

steady economic recovery is the cornerstone of a

stronger yuan. China's economic growth slowed

quarter by quarter in 2021 due to repeated epidemic

outbreaks and a relatively high base, but the annual

growth rate was still as high as 8.1% and the two-year

average growth rate was 5.1%. China has maintained

its leading position in economic development and

epidemic prevention and control, far outperforming

the US and other developed economies and

providing a solid foundation for the stronger RMB

against the US dollar.

After entering 2022, the currencies of major

Asian economies showed a trend of appreciation and

then depreciation. Compared to the closing price on

December 31st, 2021, the overall appreciation of the

RMB against the US dollar as of February 28th, 2022 was

approximately 0.7%. As of the closing on January 24th,

2022, the Japanese yen appreciated by about 1.1%

against the US dollar. However, with the outbreak of

the conflict between Russia and Ukraine, market

uncertainty gradually increased, and the international

exchange rate market fluctuated sharply. The Federal

Reserve began to raise interest rates, and the US dollar

has already entered the appreciation channel. The risk

aversion of international capital has increased

significantly, which has caused some depreciation

pressure on the currencies of Asian economies. It is

worth noting that，in terms of the central parity of the

US dollar against the RMB, the average central parity

of the RMB from February 24th to March 11th appreciated

by 0.45% compared with the average from February

1st to 23rd. Supported by strong economic fundamentals

and international capital inflows, the RMB initially

presents the characteristics of a safe haven currency,

even against the background of Russia and Ukraine

conflict. In the future, the direction of the conflict

between Russia and Ukraine, the pace and intensity of

the Fed's rate hike and the trend of COVID-19 will have

a greater impact on the exchange rate trend of Asian

economies.

1.5.3 A Rise of Bond Yields

Ten-year bond yields have risen in most Asian

economies. According to monthly statistics from

Investing.com, the ten-year bond yields rose in 18

Asian economies (see Table 1.2): Japan, Jordan, Israel,

Kazakhstan, Taiwan Province of China, Indonesia,

Qatar, Korea, India, Hong Kong Special Administrative

Region of China, Thailand, Singapore, Malaysia, Pakistan,

Bangladesh, the Philippines, Sri Lanka and Turkey, and

fell in only 2 economies: China and Vietnam. Based on

the 10-year treasury yields (closing price) in December

2021, there were 7 economies with a return ratio

above 5% and 13 economies with a return ratio below

5%. Turkey's 10-year bond return ratio was relatively

high at 23.1%, and Japan's 10-year bond yield was

relatively low, at about 0.1%. In addition, China's 10-

year bond yield was around 2.8%, the Korea’s was

around 2.3% and India's was around 6.5%. The rise in

the 10-year bond yields in most Asian economies is

linked to a pick-up in inflation and base effects.

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Table 1.2 Ten-Year Government Bond Yields of Some

Asian Economies, 2021 (%, percentage point)

Economies Dec. 2011 Dec. 2020 Change Economies Dec. 2021 Dec. 2020 Change

China 2.8 3.2 -0.4 India 6.5 5.9 0.6

Vietnam 2.1 2.5 -0.4 Hong Kong SAR, China 1.4 0.8 0.7

Japan 0.1 0.02 0.05 Thailand 2.0 1.2 0.8

Jordan 4.9 4.7 0.2 Singapore 1.7 0.8 0.8

Israel 1.0 0.8 0.2 Malaysia 3.6 2.7 0.9

Kazakhstan 10.6 10.2 0.4 Pakistan 11.5 9.9 1.6

Taiwan, China 0.7 0.3 0.4 Bangladesh 7.5 5.8 1.7

Indonesia 6.4 5.9 0.4 the Philippines 4.7 3.0 1.8

Qatar 2.2 1.7 0.5 Sri Lanka 12.2 8.0 4.3

Korea,

Republic of 2.3 1.7 0.5 Turkey 23.1 12.5 10.5

Note: Changes in 10-year government bond yield = closing price on last trading day of December 2021 – closing price on last trading day of

December 2020. The data for some Asian economies are unavailable.

Source: Investing.com, February 2022.

Inflation expectations generally have a positive

correlation with treasury yields. The higher inflation

expectations, the steeper the yield curve and the

higher return ratio investors would demand to

compensate for higher inflation in the future. Japan's

10-year bond yields, which have been low for a long

time, have rebounded in 2021 as monthly core

inflation turned from negative to positive and inflation

expectations rose. Turkey's 10-year bond yields were

relatively high, mainly due to high inflation, the

collapse of the lira and the build-up of geopolitical

risks. The negative impact of the epidemic has

brought "triple pressure" to China's economic

development, with economic growth falling quarter

by quarter and inflation pressure remaining low.

China's moderately relaxed monetary policy to meet

the reasonable liquidity needs of financial institutions

has further boosted the market's expectation of a

loose monetary policy, leading to higher bond buying

demand and lower 10-year government bond returns.

1.5.4 Revival of the Real Estate Market

Property prices rose in the vast majority of Asian

economies, and by a large margin in some economies.

Of the Asian economies with quarterly statistical data

included in the CEIC database, 13 saw real estate price

rises in the third quarter of 2021, including Turkey,

Kazakhstan, Korea, Taiwan Province of China, Japan,

Singapore, Thailand, the Philippines, Brunei, Hong

Kong Special Administrative Region of China,

Indonesia and Mongolia, and only Malaysia suffered a

0.7% drop in real estate prices year-on-year. A few

economies in the region saw a considerable increase

in property prices. Turkey's real estate prices saw the

biggest increase of approximately 33.4%, followed by

Kazakhstan, a 27.1% increase, and then the ROK, about

a 15.1% increase. In comparison, some Asian economies

have seen smaller real estate price increases, of which

Mongolia's real estate saw the smallest price increase

of about 1.3%. Indonesia's property prices rose by

about 1.4%, Hong Kong Special Administrative Region

Chapter 1 Asian Economic Outlook and Policy

031

of China about 3.8%, Chinese mainland real estate

prices rose 7.0% year-on-year and Japan's real estate

prices rose 8.2%.

Since the outbreak of the epidemic, the US and

other developed economies have implemented ultra-

loose macro policies, and interest rates in many

economies have been lowered to the lowest levels in

history, resulting in excess global liquidity and a

general rise in the prices of real estate, precious

metals, securities and other assets. This is the main

reason for the rise in real estate prices in most Asian

economies. Turkey's house price growth has been

among the highest in Asia and the world. On the one

hand, it’s because of the steep depreciation of the

Turkish lira against the US dollar, which has made

imported materials used in construction more expensive.

On the other hand, the sharp depreciation of the lira

triggered the enthusiasm of foreign buyers. In

November 2021, foreigners bought 7,363 homes in

Turkey, a 50% increase from the previous year and the

highest ever recorded since 2003 when Turkey began

to have such kind of statistics. At the same time, Turkey

was also facing serious inflation, and loose monetary

policies, such as lowering the benchmark interest rate,

further boosted inflation expectations and increased

depreciation pressure on the lira, ultimately leading to

large increases in house prices.

Affected by the supply side, the demand side

and the tightening of financial policies, China's real

estate market in 2021 was obviously divided, with

housing prices generally showing a trend of “first rise

and later fall”. On a quarterly basis, some hot cities saw

rising enthusiasm for real estate, but after entering the

third quarter, real estate sales data showed a downward

trend due to the increasing effects of regulation

policies such as the guiding prices adopted for

second-hand houses, the tightening of bank credit

policies and the increasing debt risks of some real

estate enterprises. In the fourth quarter, real estate

sales rose month-by-month under the incentive of

stable expectations. In terms of the whole year,

statistics released by the National Bureau of Statistics

of China on January 17, 2022 shows that in 2021,

China's commercial housing sales area, sales volume

and real estate development investment increased by

1.9%, 4.8% and 4.4% over the previous year respectively,

with the growth rates all decreasing from 2020. The

average selling price of commercial housing was

RMB10,139 per square meter, up 2.8% from the

previous year, the slowest growth rate in nearly five

years. In general, against the backdrop of "housing is

for living in, but not for speculation”, China's

comprehensive regulation of the real estate market

aimed at "stabilizing land prices, housing prices and

expectations" led to a mild rise in real estate prices

throughout the year.

1.5.5 Risks in the Banking Sector Generally

Under Control

Non-performing loan (NPL) ratios of the banking

sector in most Asian economies have risen. According to

World Bank statistics, among comparable Asian

economies, the banks’ NPL ratio increased in 17 Asian

economies in 2020 compared with 2019, and

decreased in 6 Asian economies (see Table 1.3) in 2020

compared with 2019. Specifically, banks in Kyrgyzstan,

the United Arab Emirates and the Philippines saw the

largest increase in their NPL ratios, with an increase of

2.4 percentage points, 1.7 percentage points and 1.6

percentage points respectively, while banks in Israel,

Malaysia and Nepal saw smaller increases in their NPL

ratios, with an increase of 0.09 percentage points, 0.05

percentage points and 0.02 percentage points

respectively. In contrast, banks in India, Bangladesh

and Maldives saw large declines in their NPL ratios,

with a decline of 1.3 percentage points, 1.2 percentage

points and 1.1 percentage points respectively. In 2020,

banks in all Asian economies (with available data)

except Kyrgyzstan saw their NPL ratios below the

international warning line of 10%, which shows that

the banking system of most Asian economies is

relatively sound, and the probability of systemic

default risk is low.

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Table 1.3 NPL Ratios of Banks in Some

Asian Economies, 2017-2020 (%)

Economies 2017 2018 2019 2020

Macao SAR, China 0.2 0.2 0.2 0.3

Korea, Republic of 0.4 0.3 0.3 --

Hong Kong SAR, China 0.7 0.5 0.6 0.9

Singapore 1.4 1.3 1.3 --

Israel 1.3 1.2 1.4 1.5

Uzbekistan 1.2 1.3 1.5 2.1

Vietnam 1.8 1.8 1.5 --

Malaysia 1.5 1.5 1.5 1.6

Cambodia 2.1 2.0 1.6 1.8

Nepal 1.7 1.6 1.7 1.7

Kuwait 1.9 1.6 1.8 --

Saudi Arabia 1.6 2.0 1.9 2.2

China 1.7 1.8 1.9 1.8

Georgia 2.8 2.7 1.9 2.3

the Philippines 1.6 1.7 2.0 3.5

Indonesia 2.6 2.3 2.4 2.8

Thailand 3.1 3.1 3.1 3.2

Brunei 3.7 4.7 3.9 3.9

Sri Lanka 2.5 3.4 4.7 4.9

Turkey 2.8 3.7 5.0 3.9

Armenia 5.4 4.8 5.5 6.6

Jordan 5.3 5.4 -- --

United Arab Emirates 5.3 5.6 6.5 8.2

Kyrgyzstan 7.4 7.3 7.7 10.1

Kazakstan 9.3 7.4 8.1 --

Bhutan 8.4 7.0 8.4 --

Pakistan 8.4 8.0 8.6 9.2

Bangladesh 8.9 9.9 8.9 7.7

India 10.0 9.5 9.2 7.9

Maldives 10.5 8.9 9.4 8.3

Afghanistan 12.2 8.9 -- --

Lebanon 5.7 10.3 15.2 --

Iraq 14.8 17.5 16.2 --

Notes: NPL ratio = Banks’ NPLs *100%/ total loans, that is, the amount of NPLs are divided by the total loan portfolio (including the NPL

before deducting the special loan loss reserve). The economies in this table are ranked according to the 2019 data. Data are unavailable

for some Asian economies. -- means data unavailability.

Source: World Development Indicators (WDI) database, January 2022.

Chapter 1 Asian Economic Outlook and Policy

033

In addition, banking institutions in most Asian

economies have good capital adequacy ratios, with

risks generally under control. The main risk indicators

of China’s banking sector are generally within a

reasonable range. Although there is pressure for the

rebound of non-performing loans, the risks are

generally under control. As of the end of the fourth

quarter of 2021, the NPL ratio of China’s commercial

banks was 1.73%, down 0.02 percentage points from

the end of the previous quarter, according to

information released by the China Banking Regulatory

Commission (CBRC) in February 2022. Capital

adequacy ratio was 15.13%, up 0.33 percentage from

the end of last quarter, of which, Tier 1 capital

adequacy ratio was 12.35%, up 0.23 percentage from

the end of the previous quarter, and core Tier 1 capital

adequacy ratio was 10.78%, up 0.12 percentage from

the end of the previous quarter. Japanese banking

institutions had a capital adequacy ratio of 11.7% in

the third quarter of 2021; Korean banking institutions

had a capital adequacy ratio of 15.65% in the second

quarter of 2021; Singapore's banking institutions had

a capital adequacy ratio of 17.4% at the end of 2020;

Malaysian banking institutions had a capital adequacy

ratio of 18.1% in the first quarter of 2021; Thai banking

institutions had a capital adequacy ratio of 19.9% at

the end of 2021; the Philippine banking institutions

had a capital adequacy ratio of 17.4% in the third

quarter of 2021; Indonesian banking institutions had

a capital adequacy ratio of 25.68% in November 2021;

Vietnam's banking institutions had a capital adequacy

ratio of 11.01% in the second quarter of 2021;

Cambodian banking institutions had a capital

adequacy ratio of 22.31% at the end of 2021; Laos

banking institutions had a capital adequacy ratio of

13.1% in the third quarter of 2020; Brunei banking

institutions had a capital adequacy ratio of 19.87% in

the third quarter of 2021; Myanmar's banking

institutions had a capital adequacy ratio of 10.89% at

the end of 2018; Indian banking institutions had a

capital adequacy ratio of 15.6% at the end of 2020;

Saudi banking institutions had a capital adequacy

ratio of 23.8% at the end of 2020; and Pakistan's

banking institutions had a capital adequacy ratio of

13.8% at the end of 2021. The capital adequacy ratios of

banking institutions in these Asian economies all meet

the regulatory requirements of Basel Agreement III.

Recently, the US, Europe and other developed

economies are gradually withdrawing from

quantitative easing monetary policies, which will

cause the flow of international capital to developed

economies, and bring about disturbance to the global

financial market. Sound risk control indicators and

fundamentals will provide supports for Asian banking

institutions to fend off possible risks.

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Chapter 2 Hot Issues of Asian Economies

035

Chapter 2

Hot Issues of Asian Economies

1 234

2.1 Global Development

Initiative

In recent years, many economies have clearly lacked

impetus for development, and global development

imbalances have become increasingly prominent. The

COVID-19 pandemic has led to a sharp downturn in

the world economy and accelerated the accumulation of

some long-term problems. According to the IMF

statistics, the world economy recorded the lowest

level of growth in 2020 since the Great Depression of

the 1930s, with an economic growth rate of negative

3.1%.1 Despite a sharp rebound in the world economy

in 2021 driven by base effects and policy factors, there

are still increasing risk factors hindering global

economic growth and increasing downward pressure

on the economy. At the same time, income

distribution inequality and uneven development

space have become prominent problems facing the

international community and major causes of social

unrest in many economies. Over the past few

decades, the global distribution of wealth has

become increasingly unequal. According to the

Global Wealth Report by Credit Suisse Research

Institute, the number of adults with a wealth of more

than USD1 million in 2020 was 56 million, accounting

for 1.1% of the global adult population, with a total

wealth of USD191.6 trillion, or 45.8% of the world’s

1 IMF. World Economic Outlook:Rising Caseloads, A Disrupted Recovery, and Higher Inflation, January 2022.

2 Credit Suisse Research Institute. Global Wealth Report 2021. June 2021.

3 United Nations. The Sustainable Development Goals Report 2021. New York: United Nations, 2021.

4 Xi Jinping. Strengthening Confidence to Overcome Difficulties and Build a Better World—Speech at the General Debate of the 76th United

Nations General Assembly. People’s Daily, September 22, 2021.

total wealth. During the same period, the number of

adults with wealth less than USD10,000 was 2.879

billion, accounting for 55.0% of the global adult

population, with a total wealth of USD5.5 trillion, or

1.3% of global total wealth.2 According to the United

Nations (UN) Sustainable Development Report 2021, the

number of people living in poverty increased by 120

million in 2020 from the previous year, and the

extreme poverty rate rose by 1.1 percentage points

from the previous year to 9.5%, the first increase in the

past 22 years.3

At the general debate of the 76th session of the

United Nations General Assembly on September 21,

2021, Chinese President Xi Jinping put forward the

Global Development Initiative for the first time,

outlining a systematic policy and action framework for

inclusive development to bring global development

to a new stage of balanced, coordinated and inclusive

development. Xi stressed the need for global joint

efforts to address global threats and challenges and

build a community with a shared future for mankind.4

The initiative advocates adhering to the people-

centered development philosophy, regarding

improving people's well-being and realizing people’s

all-round development as the starting point of all

work, viewing the yearning of all countries’ people for

a better life as the working target, holding fast to

development as the key to solve all problems and

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036

going all out to resolve difficult problems, to create

more opportunities for development and work that

will not allow any country and any person left behind;

It also advocates following the guide of practical

cooperation, grasping the pulse of the global

development and urgent demand, taking poverty

reduction, food security, and epidemic prevention and

vaccine, development financing, climate change and

green development, industrialization, digital

economy and connectivity as key areas of cooperation,

and working out cooperation ideas and proposals to

transform develop consensus into practical action.1

The Belt and Road Initiative proposed by President Xi

Jinping has become a popular public good for

international development and the largest platform for

development cooperation. The great progress and

achievements made by the international community

in jointly building the Belt and Road demonstrate that

to address various global issues and challenges and

bridge the deficit in global governance, we must first

focus on development and address the development

deficit facing mankind. The Global Development

Initiative, which is forward-looking and of great

realistic significance, is an important public good and

cooperation platform proposed by President Xi

Jinping for the international community following the

Belt and Road Initiative he put forward, which fully

reflects the strong desires of the people of the

countries all over the world for happiness and

development, and fully embodies the new

development concepts of “innovation, coordination,

green, open, and sharing”.

Despite being one of the fastest growing regions

in the world, Asia's economy has also been hit hard by

the COVID-19 outbreak. As the epidemic continues to

spread across the globe, it is difficult to predict when

it will end. In addition, the frequent emergence of

virus variants has made the global epidemic

prevention and control situation more difficult to

predict, and the emergence of mutated virus strains

with stronger virulence and faster transmission

cannot be ruled out in the future. The epidemic

remains the primary obstacle to economic recovery in

Asia. Even leaving aside the pandemic, Asia's

economic growth will still face constraints from

various non-pandemic factors, some of which have

1 China’s Stance on UN Cooperation. People’s Daily, October 23, 2021.

even been exacerbated by the response to the

pandemic. For example, some countries may be

slower in promoting structural reforms, the trend of

population aging in major economies will become

increasingly aggravated, and developed economies

may adjust their monetary policies. In order to

promote the common development of the world,

including Asia, China has not only helped developing

countries deal with debt and poverty through debt

relief and aid in the short run, but has also made

continuous effort to promote economic globalization

in a more open, inclusive, balanced and win-win

direction and promote more just and reasonable

development of the global governance system in the

long run. What China advocates is development-

oriented global governance. In early January 2022,

Chinese Foreign Minister Wang Yi visited five African

and Asian countries and proposed the convening of a

development forum of Indian Ocean island countries

at an appropriate time, saying that the global

development initiative meets the needs of post-

epidemic recovery and sustainable development of

Indian Ocean island countries. On January 25, 2022,

China and five Central Asian countries held a video

summit marking the 30th anniversary of the

establishment of diplomatic ties, during which the

implementation of the global development initiative

was an important agenda. In the next three years,

China will provide USD500 million in free assistance to

Central Asian countries for livelihood projects, and

5,000 quotas for seminars to help Central Asian

countries train professionals in healthcare, poverty

reduction, agricultural development, connectivity,

information technology and other fields to boost the

internal driving force of their development.

The historical experience of Asian development

shows that only development can serve as the master

key to solving many problems, and only common

development can provide an important guarantee for

peace and security. The Global Development Initiative

can promote more solid recovery and sustainable

development in Asia in the following aspects:

(1) Promote innovation-driven development, to

foster a dynamic growth model. At present, human

society is undergoing the fourth industrial revolution,

breakthroughs are being made in frontier areas such

Chapter 2 Hot Issues of Asian Economies

037

as information technology, life sciences, intelligent

manufacturing and green energy, the cycle of new

materials, new products and new forms of business is

shortening, and the Asian economy is entering a

crucial stage of shifting from old to new drivers of

growth. It is the common aspiration of all countries to

open up new sources of growth for the Asian

economy through innovation, structural reform, new

industrial revolution and digital economy.

(2) Promote coordinated and interconnected

development to foster an open and win-win

cooperation model. A high degree of interconnection

of the economies and markets among Asian countries

are one of the major features of today’s Asia and also

an irreversible trend of the times. Asian countries

cannot achieve their own development in isolation,

nor can they solve various development problems on

their own. In the face of global development challenges,

it is all the more important to work together to build an

open world economy and continue to promote trade

and investment liberalization and facilitation.

(3) Promote equitable and inclusive development

to foster a balanced development model that benefits

all. The development imbalance in today's world is

reflected not only in the North-South development

gap between emerging markets and developing

countries and developed countries, but also in the

development gap between different groups within a

country. This gap is also evident in Asia, where it has

given rise to many contradictions, conflicts and

destabilizing factors. The root cause is the lack of

inclusive development. In the course of development,

only inclusiveness and benefits for all can bring

benefits to people of all countries.

2.2 Climate Change and the

Green Economy

As the global climate continues to warm up,

unexpected global natural disasters are increasingly

characterized by high frequency, strong impact and

wide distribution. Their impact on human health, life

safety, economy and society has been growing, and

has become an important bottleneck restricting

1 ADB. A Region at Risk: The Human Dimensions of Climate Change in Asia and the Pacific, July 2017.

2 McKinsey Global Institute. Climate Risk and Response in Asia, November 24, 2020.

3 William J. Ripple, et al. World Scientists’ Warning of a Climate Emergency 2021. BioScience, Vol. 71, No. 9, 2021, page 894–898.

4 IPCC. AR6 Climate Change 2021: The Physical Science Basis, August 9, 2021.

global sustainable development. Asia is no exception.

In 2017, an Asian Development Bank study said that

continued climate change would have devastating

consequences for countries in the Asia-Pacific region,

which would not only potentially severely affect

future growth, but would also erode current

development gains and reduce quality of life. 1 In

November 2020, the McKinsey Global Institute

released a report stating that climate change has

become a key growth challenge in Asia, and climate

change would likely cause greater impacts to Asia

than to many other regions. The study found that an

average of USD2.8 trillion to USD4.7 trillion of Asia's

annual GDP could be at risk by 2050 as rising

temperatures and humidity prevent people from

working effectively outdoors.2

After a brief slowdown following the outbreak of

the COVID-19 pandemic, there was a “retaliatory”

increase in human carbon emissions. In April 2021, the

concentration of carbon dioxide in the atmosphere

reached the highest monthly level ever recorded, and

glaciers in Greenland and Antarctica were melting

31% faster than 15 years ago. In July, thousands of

scientists renewed in the Bioscience Journal “The World

Scientists' Warning: A Climate Emergency for 2021”,

declaring that humanity was approaching or had

already passed the tipping point for maintaining

global or regional climate stability.3 In August 2021,

the United Nations Intergovernmental Panel on

Climate Change (IPCC) pointed out that the earth is in

a climate red alert, with extreme weather events

bringing increasingly devastating disasters to many

countries. Even if all countries start to drastically

reduce carbon emissions from today, the total

increase in global warming is still likely to reach 1.5

degrees Celsius over the next 30 years. Thanks to

global warming, some extreme weather conditions in

2021 will become the new climate normal for the

world in the future.4

In 2021, Asia’s major economies were all affected

by extreme weather disasters. China's Ministry of

Emergency Management and the Academy of

Disaster Reduction and Emergency Management

under the Ministry of Education jointly selected the

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038

world's top 10 natural disaster events in 2021, four of

which happened in Asia. The first was the Typhoon Rai

that hard-hit the Philippines hard. On December 16,

2021, Typhoon Rai, the 22nd typhoon of 2021, made

landfall on Siargao Island, a resort island in North

Surigao province of Mindanao, the Philippines. It then

swept northwest along Mindanao and Mishaye

Islands, making eight landfalls in the Philippines. In the

following 10 days, Rai left at least 378 people dead, 60

missing, 742 injured and 3.95 million affected in the

Philippines. Economic losses were estimated at more

than 20.4 billion Philippine pesos (approximately

RMB2.59 billion). The second was heavy rains in

Indonesia and East Timor that caused severe flooding.

On April 3 to 4, affected by a tropical cyclone,

Southeast Indonesia and parts of East Timor were hit

by heavy rain, causing severe flooding. The disaster

killed at least 222 people in both countries, left dozens

missing and displaced tens of thousands. The third

was the heavy floods caused by the breaking of

glaciers in northern India. On February 7, a glacier

broke off in Jemori District of Uttarakhand, India,

causing massive floods in the two local rivers,

damaging local houses, two hydropower stations, six

bridges, construction tunnels, oil sites and other

facilities in the area. Thousands of people in the

surrounding area had to be evacuated, and more than

207 people were dead or missing. The fourth was

heavy rains in India and Nepal that caused floods and

landslides. On October 15, heavy rains hit India's

northeastern state of Akhand, the southwestern state

of Kerala and parts of Nepal, triggering such natural

disasters as flash floods and landslides. Within a week,

the disaster killed at least 201 people in India and

Nepal and affected the livelihoods of millions.

As global warming continues, extreme floods,

droughts and typhoons are likely to occur more

frequently, which will inflict greater economic losses

and casualties on all countries and disrupt normal

economic and social order. Reducing carbon

emissions to deal with climate change has become

the mainstream consensus in today’s world. To cope

with climate change, it has become an irresistible

trend to practice the concept of green development,

promote energy transition and develop green

economy. Green development means that people

1 Xi Jinping. Speech at the General Debate of the 75th Session of the United Nations General Assembly. People’s Daily, September 23, 2020.

and nature live and coexist in harmony. Human

activities and economic development must respect

the laws of nature and follow the trend of natural

development, otherwise they will be punished by

nature. As a part of nature, man and nature are in

essence in a symbiotic relationship. Therefore, the

emphasis on green development means that in the

process of development, we should not only utilize

and transform nature, but also protect nature and take

the road of sustainable development. Under the

influence of climate change and other factors, low-

carbon and green development of resources and

energy has become a trend, and the commitment to

peaking carbon emissions and realizing carbon

neutrality has become a widely accepted "political

correctness". In response, several Asian governments,

including China, Japan, Korea and India, have made

climate pledges to achieve net zero emissions.

As Asia’s largest economy, China has taken an

active part in global climate change governance,

stepped up efforts to address climate change, and

accelerated the overall green transformation of its

economic and social development. Since the 18th

Communist Party of China (CPC) National Congress,

the Chinese government has repeatedly stressed the

importance of environmental protection and clearly

pointed out the dialectical relationship between

environmental protection and economic development,

highlighting China's unswervingly clear attitude and

firm determination to uphold ecological civilization

and environmental protection. On September 22,

2020, Chinese President Xi Jinping solemnly declared

at the general debate of the 75th Session of the United

Nations General Assembly that China would increase

its nationally determined contribution, adopt more

effective policies and measures, strive to peak carbon

dioxide emissions by 2030 and achieve carbon

neutrality by 2060. 1 The time span from carbon

emissions peaking to carbon neutrality to which

China made a commitment is far shorter than that of

developed countries, which fully demonstrates

China's responsibility to promote global green

transformation and lead global climate governance.

In 2020, the Japanese government set a goal of

achieving net zero greenhouse gas emissions by 2050.

To achieve carbon neutrality by 2050, the Japanese

Chapter 2 Hot Issues of Asian Economies

039

government issued a "Green Growth Strategy" at the

end of 2020, which promotes greenhouse gas

emission reduction in 14 key areas, including offshore

wind power, electric vehicles, hydrogen energy,

shipping, aviation and residential buildings. In April

2021, Then-Prime Minister Yoshihide Suga said that

Japan aimed to reduce greenhouse gas emissions by

46% in 2030 compared with 2013, and would work

toward a 50% reduction. In May 2021, Japan passed

the revised Global Warming Countermeasures and

Promotion Act, clarifying its target of greenhouse gas

emission reduction for the first time in the legal form.

The law will go into effect in April 2022. Under the new

law, local governments, including Japan's metropolitan

prefectures, will be obliged to set specific targets for

renewable energy, and develop incentives for

expanding solar and other renewable energy sources.

The ROK government also announced in 2020

that it would achieve carbon neutrality by 2050. In

August 2021, the National Assembly of Korea voted to

pass the Basic Law on Carbon Neutrality and Green

Growth to Address the Climate Crisis (hereinafter

referred to as the Basic Law on Carbon Neutrality), and

set out the country's mid-and long-term emission

reduction targets. In October 2021, the Korean

government set the national greenhouse gas

emission reduction target for 2030 and the carbon

neutrality implementation plan for 2050, and made

the emission reduction target proposed in the Basic

Law on Carbon Neutrality more specific, cutting its

greenhouse gas emission target for 2030 by 40% from

the 2018 level. In an effort to get industries to work

together to meet the new emission reduction target,

the ROK government said it planned to reduce the

share of electricity generated by coal to 21.8% and

increase the share of renewable energy to 30.2%. It

also said by 2025, 4.5 million vehicles on the road will

be electric or hydrogen powered, and related

infrastructure such as charging stations will be added.

At the 26th United Nations Climate Change

Conference (COP26) in 2021, Indian Prime Minister

Narendra Modi said India would strive to achieve net

zero emissions by 2070. Modi also said India would

increase its non-fossil fuel power generation capacity

target to 500 gigawatts by the end of 2030, with

renewables accounting for 50% of power generation,

and would reduce carbon intensity—the amount of

1 ECB’s Lagarde repeats pledge for gradual policy shift. https://www.fxempire.com/news/article/ecbs-lagarde-repeats-pledge-for-gradual-

policy-shift-898376.

carbon dioxide emitted per unit of GDP—by 45% by

2030. India currently accounts for 5 % of global carbon

emissions and about 40% of renewable energy.

The Belt and Road Initiative proposed by China

has also vigorously promoted green and sustainable

development in Asian countries. In the process of

high-quality Belt and Road cooperation, China has

actively promoted international climate negotiations

and policy coordination of policies on climate change,

participated in and led the updating and expansion of

international standards and rules on climate change,

and effectively helped developing countries mitigate

and adapt to the impact of global climate change. On

June 24, 2021, the Belt and Road High-level Meeting

for International Cooperation in the Asia-Pacific region

was successfully held and two cooperation initiatives

were launched, one of which is the Belt and Road Green

Development Partnership Initiative, which aims to

strengthen cooperation in green infrastructure, green

energy and green finance. As a multilateral

development financial institution under the Belt and

Road international cooperation framework, the Asian

Infrastructure Investment Bank (AIIB) has played an

important role in promoting green economy and has

pledged to increase financing to combat climate

change. It is expected that by July 1, 2023, all AIIB

investment projects will be fully consistent with the

goals of the Paris Agreement, and the AIIB’s cumulative

climate financing is expected to reach USD50 billion

by 2030.

2.3 Post-Epidemic

Normalization of the US and

European Macroeconomic

Policies

At present, the world economy is recovering steadily,

and the ultra-loose monetary policies implemented

by major economies in response to the epidemic are

on the way out, but their expansionary fiscal policies

are still in place. In March 2022, the Federal Reserve

officially raised interest rates by 25 basis points, and

the withdrawal of its loose monetary policy has

accelerated. The main leader of the European Central

Bank (ECB) said that the policy adjustment of the ECB

would be "gradual".1 The shift toward normalization

Boao Forum for Asia Asian Economic Outlook and Integration Progress Annual Report 2022

040

of the US and European macroeconomic policies will

inevitably have an impact on the capital markets,

exchange rate markets, commodity prices and debt,

including those in Asian economies.

2.3.1 Macroeconomic Policies of the US

At present, the US interest rate hike has been

implemented, and the exit of loose monetary policy

has been accelerated. The Federal Open Market

Committee (FOMC) pointed out in a statement issued

on March 16th, 2022 that the conflict between Russia

and Ukraine and related events may bring additional

upward pressure on inflation and have a negative

impact on economic activities.1

The inflation in the US has skyrocketed to its

highest level in nearly four decades while the

unemployment rate has declined to a record low,

which is the main reason to prompt the Fed to

accelerate its exit from the ultra-loose monetary

policy. According to the data released by the US

Department of Labor on February 10, 2022, the US’s

Consumer Price Index (CPI) increased by 7.5% year-

on-year in January 2022, exceeding 5% for the eighth

consecutive month. It has been the largest increase

since February 1982. Core inflation, which excludes

energy and food prices, rose 6% from a year earlier, the

biggest increase since August 1982. Rising prices of

energy and autos continue to be the main drivers of

soaring prices in the US in January, while labor

shortages, generous government assistance, ultra-low

interest rates and strong consumer demand have

combined to keep inflationary pressures high through

2021. For the time being, labor shortages and supply

chain bottlenecks will continue to keep inflation high

in the US. According to the data released by the US

Department of Labor on February 4, 2022, the US

unemployment rate inched up 0.1 percentage point

month-on-month to 4% in January 2022, while the

unemployment rate continued to fall from 5.9% to

3.9% between June and December 2021, the lowest

since COVID-19. According to the Beige Book of

Economic Conditions released by the Federal Reserve

on January 13, 2022, the US economy maintained a

moderate expansion at the end of 2021, but

companies still faced supply chain disruptions and

labor shortages, and the momentum of economic

recovery continued to be under pressure. As raw

1 Federal Reserve issues FOMC statement. https://www.federalreserve.gov/newsevents/pressreleases/monetary20220316a.htm.

material prices, logistics costs and wages rose,

manufacturing and services costs have both seen a

rise, pushing up inflation significantly. As inflationary

pressure continues to rise and employment continues

to improve, the impetus for the Fed to accelerate its

exit from the ultra-loose monetary policy is growing.

Meanwhile, the US fiscal policy is still

expansionary. In order to deal with the continuing

impact of the epidemic, on the basis of previous

rounds of expansionary fiscal policies, US President

Joe Biden signed the American Rescue Plan (ARP) of

USD1.9 trillion on March 11, 2021, aiming to help

accelerate economic recovery by further expanding

fiscal spending. For families, the plan included

immediate relief of up to USD1,400 per person, and for

businesses, it provided USD7 billion in additional

assistance to pay for exemptible wage protection

scheme loans. Tens of billions of dollars have been

allocated in aid to the hardest-hit industries like

airlines and as key tax credits. For state and local

governments, the ARP provided USD350 billion to

support emergency needs and consolidate the

foundation for long-term economic recovery. In

November 2021, Biden signed an infrastructure

investment bill totaling about USD1 trillion, the largest

investment in roads, bridges, railways and mass transit

in decades. The bill includes funding for existing

federal public works projects and an extra investment

of about USD550 billion in infrastructure over five

years. In addition, Biden's "Build Back Better" bill,

covering clean energy, universal preschool, subsidized

child care, health care, affordable housing and care for

the elderly, is also in bipartisan negotiations. Much of

this expansionary spending is financed by US

government borrowing, which is bound to raise the

scale of the US government's debt in the long run.

In fact, since the outbreak of the international

financial crisis in 2008, the US has been implementing

expansionary fiscal policies on the whole. Especially

since the outbreak of COVID-19, the US government

has launched several rounds of fiscal rescue measures,

resulting in the scale of federal government debt

repeatedly reaching record highs. According to

statistics from the US Treasury Department, the debt

of the US federal government exceeded USD30 trillion

as of January 31, 2022, a new record high, which was

Chapter 2 Hot Issues of Asian Economies

041

a jump of nearly USD7 trillion from the pre-epidemic

late January 2020. According to the Treasury

Department estimates, the US’s total debt may be

about 130.7% of the GDP in 2021, well above the

international warning line of 60%. In the 2021 fiscal

year, the US federal deficit reached USD2.8 trillion, the

second highest on record, with a deficit ratio of 12.4%.

The Congressional Budget Office forecasts the US

fiscal debt will increase by another USD13.6 trillion in

the next 10 years, with a debt to GDP ratio of 140%.

At present, the development trend of the US

federal government debt is worrisome and its room of

fiscal policy maneuvering has been greatly compressed.

In particular, with the Fed’s phasing out of the

quantitative easing monetary policy and starting the

cycle of interest rate hikes, the burden of debt interest

on the US government will become increasingly

heavy. If the US’s economic growth has been low or

even negative in the long term, its expansionary fiscal

policy would be unsustainable given that it would

severely reduce the US’s ability to respond to future

economic crises or other shocks.

2.3.2 European Macroeconomic Policy

At present, the European Central Bank holds a

"gradual" policy adjustment position. On February 3,

2022, the ECB announced that it would keep its three

key interest rates unchanged. In terms of major

interest rate adjustments, the ECB has kept the main

refinancing rate unchanged at 0%, the deposit facility

rate unchanged at -0.5%, and the marginal lending

facility rate unchanged at 0.25%. In terms of asset

purchases, the temporary pandemic emergency

purchase program (PEPP) implemented in response

to COVID-19 will end in March 2022 as originally

planned. At the same time, the ECB will temporarily

expand its regular asset purchase program (APP) in

the second quarter of 2022 and the third quarter,

respectively with 40 billion euros and 30 billion euros

per month, and will return to 20 billion euros a month

in the fourth quarter, to help ease the negative impact

to be brought about by the exit of the emergency

asset purchase plan.

The record high inflation rate and record low

unemployment rate are the main reasons for the ECB's

attitude towards interest rate hikes from "dovish" to

"hawkish". Inflation in the euro zone continues to rise

to record highs and inflationary pressure has

increased significantly. Data released by Eurostat on

February 2, 2022 showed that inflation in the euro

zone reached a record 5.1% in January 2022, driven by

a sharp increase in energy prices. From January to

December 2021, inflation in the euro zone continued

to climb from 0.9% to 5.0%, mainly driven by energy

and food costs. The ECB forecasts that eurozone

inflation will reach 3.2% in 2022 and will fall to 1.8% in

2023 and 2024. At the same time, the unemployment

rate has reached a record low in Europe. The

unemployment rate in the eurozone fell to 7% in

December 2021, down 0.1 percentage points month-

on-month and the lowest level since Eurostat compiled

the data in April 1998, and the unemployment rate

across the European Union (EU) fell to 6.4%, the lowest

level since January 2000. Given that inflation

continues to hit record highs and unemployment

continues to hit record lows, the ECB has expressed

deep concern about inflation although it has

maintained its three main interest rates unchanged.

As to whether interest rates will be raised in

Europe in 2022, ECB President Christine Lagarde

believes the ECB's decision will be based on data,

while on December 16, 2021, she stressed the

prospect of an interest rate hike as "very unlikely".

Lagarde’s fine-tuning was interpreted by the market

as a sign that the ECB is no longer ruling out an

interest rate hike this year, and the policy tone is

shifting from "dovish" to "hawkish". The ECB has come

under increasing pressure amid persistently high

inflation, low unemployment and growing

expectations of interest rate rises by the Fed. On that

basis, Goldman Sachs and Deutsche Bank both

forecast the ECB could end its bond-buying program

under its regular asset purchase program in June and

raise rates by 25 basis points each in September and

December. The ECB's exit from ultra-loose policy

could come much earlier after a sustained surge in

inflation.

Moreover, the UK has led the way in raising

interest rates. The Bank of England raised its

benchmark interest rate by 15 basis points to 0.25%

on 16 December 2021, the first increase since the

COVID-19 outbreak, as a result of rising inflationary

pressures and a recovering job market. On February 3,

2022, the Bank of England raised the benchmark

interest rate by another 25 basis points to 0.5% and

Boao Forum for Asia Asian Economic Outlook and Integration Progress Annual Report 2022

042

started quantitative tightening, stopping the

reinvestment of maturing assets, selling all the

previously purchased corporate bonds and promising

to gradually reduce its holdings of Gilts in a

predictable manner. The Bank said further "moderate

tightening" was likely in the coming months.

On fiscal policy, Europe's expansionary fiscal

policy is still continuing. At present, the global

pandemic has added uncertainty to the economic

recovery, which means that Europe still needs

expansionary fiscal policy to support its recovery

process. The German Federal Government has

implemented three supplementary budget measures,

namely, an increase in fiscal expenditure of 156 billion

euros in March 2020, accounting for 4.7% of GDP; an

increase in government spending by 130 billion euros,

or 3.9% of GDP, in June 2020, and an increase in fiscal

spending by 60 billion euros, or 1.7 percent of GDP, in

March 2021. These fiscal expenditures were mainly

used for medical resources, temporary work subsidies,

child care benefits for low-income families, small and

medium-sized enterprises or self-employed workers,

and unemployment insurance. In addition to the

federal government’s fiscal stimulus, many German

regional governments have also announced

economic support measures, mainly including up to

141 billion euros in direct support and about 70 billion

euros in state-level loan guarantees.

France has also adopted proactive fiscal policies

to counter the adverse impact of the epidemic. From

March to November 2020, France introduced four

amendments to its budget law, which increased its

fiscal expenditure on fighting the epidemic to about

180 billion euros, accounting for about 8% of its GDP.

France included additional funds in its 2021 budget

additional funds to support epidemic emergency

treatment programs, which continued to grow as

containment measures escalated and eventually

amounted to about 3% of the GDP. In addition, the 2021

budget also incorporates the key elements of the fiscal

plan introduced in September 2020 to support

France's economic recovery. The recovery plan, which

provides around 100 billion euros over two years (of

which around 40 billion euros comes from the EU

recovery fund), focuses on supporting the ecological

transformation of the economy, improving the

competitiveness of French businesses and supporting

social and territorial cohesion.

At present, EU countries are universally faced

with the task of controlling the epidemic as soon as

possible, promoting economic recovery and

achieving long-term emission reduction targets, all of

which require a significant increase in public fiscal

spending. At the same time, many EU governments

are already heavily in debt, which has already

exceeded the prescribed upper ceiling of public debt,

and therefore face huge pressure to reduce debt in

the future. EU countries are in urgent need of a public

fiscal policy that can ensure both economic growth

and financial stability. The urgent task now facing the

EU is to appropriately revise the fiscal system that has

severely restricted government spending in the past

and to find a common fiscal rule that balances public

investment with debt reduction.

2.3.3 The Impact of the US and European

Macroeconomic Policy Normalization

The impact of the US and European macroeconomic

policy normalization is mainly reflected in the

following four aspects:

(1) To attract the flow of international capital to

the US and Europe

The Fed has accelerated to reduce the scale of

bond purchases, and begun to enter the cycle of

interest rate hikes ahead of time, strengthening

expectations for a stronger dollar. The ECB has ended

its emergency asset purchase program as planned,

turned cautious in raising interest rates and lowered

expectations for a weaker euro. The timing, intensity

and speed of the exit from ultra-loose monetary

policies in the US and Europe differ, but the

expectations for advanced economies to return to a

new normal are gradually warming, and the

attractiveness of assets denominated in dollars or

euros will increase, which will lead to the flow of

international capital from Asian economies to the US

or Europe. In the short term, the rapid and frequent

inflow and outflow of international capital will affect

the expectations of market investors and easily lead to

capital market turbulences and even a financial or

debt crisis. In particular, Asian economies with small

individual market size, such as Mongolia, Syria and Sri

Lanka, have just experienced a sharp rise in their stock

markets in 2021, and if international capital accelerates

arbitrage flight, their stock indexes may plunge,

highlighting the need for them to take preventive and

response measures in advance.

Chapter 2 Hot Issues of Asian Economies

043

(2) To exacerbate volatility in global exchange

rate markets

The variants of the novel coronavirus have

repeatedly hit the global economic recovery, and

destabilizing and uncertain factors still remain in

international economic and financial operations. In

particular, the gradual return to normal macroeconomic

policies of developed economies will bring new

disturbances to the international exchange rate

market. In 2021, the US and Europe continued to see

economic recovery, with rising inflationary pressure

and low unemployment rates. Given that it has

become increasingly difficult to sustain the loose

macro policies adopted in response to the epidemic,

it is inevitable for the US and Europe to exit such loose

macro policies at the right time. This will continue to

reinforce appreciation expectations of the dollar and

euro and also serves as one of the reasons for the

relative depreciation of most Asian currencies. The

Turkish lira plunged 76.8% against the dollar, the

Myanmar currency lost 33.8% and the Laos kip 19.1%.

Once the cycle of interest rate rises begins in

advanced economies, the flow of international capital

to the US and Europe will accelerate, which is likely to

further strengthen the dollar and euro and lead to

relative depreciation of more Asian currencies. At the

same time, differences in the pace of the exit of the US

and Europe from loose macroeconomic policies have

accelerated the dollar's appreciation cycle against the

euro, and the resulting gap in expectations is likely to

exacerbate volatility in international currency markets.

(3) To disturb commodity prices

Given that international commodities are mostly

traded in dollars, their price movements are influenced

not only by supply and demand, but also by changes

in the value of the dollar. Assuming that the market

supply and demand is stable, a stronger dollar will

lead to a downward trend of commodity prices amid

fluctuations. If the dollar continues to rise and raw

materials are in short supply, it will bring uncertainty

to the import costs of crude oil, coal, iron ore and grain

for Asian economies, especially for big demand countries

such as China and India, disrupt the production costs

of enterprises in Asian economies on the supply chain,

thus bringing new challenges to the global industrial

and supply chains.

(4) To push up the risk of debt default

The process of starting to raise interest rates in

advanced economies such as the US and Europe

would not only raise funding costs for market players

in the region, but also increase the interest burden on

economies with foreign debt denominated in dollars

or euros, which, if combined with a stalled economic

recovery, could trigger a debt crisis. According to the

Global Debt Monitor released by the Institute of

International Finance (IIF) on February 23, 2022, the

outstanding global debt reached a record high of

USD303 trillion in 2021. Among them, emerging

market countries' debt-to-GDP ratio was about 248%,

an increase of more than 20% from the pre-pandemic

level. Emerging markets and developing countries

and low-income developing countries in Asia

generally face the problem of rising debt levels. As

global interest rates rise and financial conditions

tighten, surging global debt could increase economic

fragility and hinder the pace of economic recovery. If

global interest rates rise faster than expected and

economic growth slows, global debts, including in

Asia, will be at risk of default.

2.4 New Developments in the

Transformation of International

Trade Rules

In recent years, unilateralism and protectionism have

repeatedly hit the WTO-centered multilateral trading

system. The WTO has been in difficulties of trade

negotiations, policy monitoring and dispute settlement.

Since 2018, major members such as the US, the

European Union, Japan, Canada and China have put

forward a number of proposals on WTO reform, but

there is great divergence among members on how to

proceed (see Column 2.1). After the outbreak of the

COVID-19 pandemic, the prospect of the WTO reform

is unpredictable. On the one hand, the COVID-19

pandemic may aggravate the inward-looking policies

of some economies and affect the political will and

diplomatic resources of countries to promote the

WTO reform. On the other hand, business models

related to the digital economy have shown unique

advantages during the pandemic, providing a

“window of opportunity” for countries to promote

negotiations on new issues such as e-commerce, and

update the WTO rules.

While the pace of the WTO reform is slow, the

signature and implementation of regional trade

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agreements (RTAs) accelerate. Today, RTAs have

covered more than half of international trade. RTAs,

especially the super-large RTA emerging in recent

years, have become an important force to promote

the formulation of international economic and trade

rules and global development. A growing number of

RTAs contain provisions that go further than

multilateral rules and cover new issues not covered

by multilateral negotiations, such as the digital economy,

environmental protection and sustainable development.

Against all the pandemic odds, on January 1, 2022, the

Regional Comprehensive Economic Partnership

(RCEP), a RTA with the largest population in the world,

came into force. It voiced strong opposition against

unilateralism and trade protectionism and supports to

free trade and the multilateral trading system, which

helped boost confidence for the regional or even

global post-pandemic economic recovery.

2.4.1 The Latest Situation and Characteristics

of RTAs

By the end of 2021, there are 352 RTAs in force

worldwide. 2009 is the peak of the number of new

RTAs that come into force. In 2017 and 2018, this

number went into a trough with the withdrawal of the

US from the Trans-Pacific Partnership Agreement

(TPP) and UK’s exit from the EU in 2018. Although the

number of new RTAs in force has remained at a low

level since 2018, different regions are still active in RTA

negotiations. The RTAs that came into force in 2018

include EU-Japan, EU-Singapore, EU-Vietnam, Peru-

Australia, Chile-Indonesia free trade agreements, the

Comprehensive and Progressive Agreement for Trans-

Pacific Partnership (CPTPP) and US-Mexico-Canada

Trade Agreement (USMCA). To some extent, the

decline in the number of new RTAs is related to the

negotiation and establishment of mega-RTAs. In

addition to the CPTPP which has 11 members, a

mega-RTA with 15 members, which has the largest

population and the most diverse membership so

far—the RCEP also entered into force on January 1,

2022. Furthermore, the UK, China and the Republic of

Korea successively applied to join the CPTPP in 2021,

which also indicates the possibility of the

enlargement of existing mega-RTAs.

The surge in the number of RTA in force in 2021

mainly comes from the re-negotiation of RTAs of the

1 Eurasian Economic Union (EAEU).

UK after its exit from the EU. Besides the RCEP, India-

Mauritius, China-Mauritius, EAEU1-Serbia and Ukraine-

Israel free trade agreements, the new RTAs that come

into force are those signed by the UK, including 32

RTAs signed with the EU, Mexico, Chile, Japan, Korea

and other countries before 2021, and 5 RTAs signed

with Iceland, Liechtenstein and Norway, Serbia,

Albania and Ghana respectively in 2021.

In terms of geographical distribution, Europe is

the region with the largest number of RTAs, followed

by East Asia, South America and North America.

Europe and the Asia Pacific have become the most

active regions of RTAs in the world.

The development of RTAs shows the following

characteristics:

First, the breadth and depth of RTA

provisions continue to expand. Today’s RTAs cover

extensive policy areas, with an increasing number of

topics that are beyond the scope of the multilateral

trade regulations. According to the statistics of the

World Bank, in recent years, the average number of

policy areas included in the RTAs has risen from 8 in

the 1950s to 17 now. The contemporary issues in the

RTA negotiations have gone beyond the traditional

border measures to regulation and coordination of

domestic policies that are “behind the borders”. Also,

the new generation of RTAs is also deepening on

various issues. Taking as an example the issue of state-

owned enterprises (SOEs), an area covered in current

new generation of RTAs (such as CPTPP and USMCA),

provisions in these RTAs include the definitions of SOEs

and the obligations that SOEs need to comply with

in their international economic activities, including

nondiscriminatory treatment and commercial

considerations, non-commercial assistance, transparency

and so on, which have also become increasingly

stricter than before.

Second, with the rise of cross-regional and

multi-regional agreements, a complex RTA network

has emerged. In recent years, mega-RTAs with great

influence such as the CPTPP and RCEP have emerged

one after another. RTAs are no longer promoted only

by developed countries, and developing countries

have also become an important driving force. Some

emerging economies in the Asia-Pacific region have

put forward proposals of RTAs and actively promoted

Chapter 2 Hot Issues of Asian Economies

045

the negotiation process. Looking ahead to the future

of the development of international trade regulations,

RTAs will become an important platform of regional

rule-making, which will make the RTA network more

complex and form a trend that regionalism and

multilateralism go hand in hand.

Third, major powers continue to be the

center while emerging economies’ influence has

been enhanced. A series of unilateralism and

protectionism actions of the US have exerted great

impact on the global trade. As the leading force of the

global economy, major powers continue to play a

leading role in the regional agreements. At the same

time, the influence of emerging economies on the

rule-making in international trade has been increasing. In

the future, emerging economies and developed

economies will have intensified competition on rule-

making, and the transformation of international trade

regulations is thus under great uncertainty.

Fourth, close economic cooperation in the

Asia-Pacific region invigorates the regional

economic development. In 2020, the global

economic growth fell sharply due to the impact of the

epidemic. At the same time, unilateralism, trade

protectionism and economic nationalism are on the

rise, bringing uncertainty to the economic globalization

together with the epidemic. In this context, economic

cooperation in the Asia-Pacific region has stood out

with many highlights. With the entry into force of

CPTPP and RCEP, the advantages of having a complete

system of supply chain and close connection

between upstream and downstream sectors in the

Asia-Pacific region will be more prominent, and the

economic potential will be more released. As a region

that is constantly opening up, developing at a high

speed and integrating with each other, the Asia-Pacific

region will play an important role in the global

economic development in the 21st century and make

more contributions to the world economy.

2.4.2 RCEP: Opening a New Chapter in Asia-

Pacific Economic Integration

On 1 January 2022, the RCEP agreement signed by ten

ASEAN countries, China, Japan, Korea, Australia and

New Zealand, entered into force. At a time when the

downward risks of the global economy are exacerbated

by the COVID-19 pandemic and the prospects of

economic globalization are becoming increasingly

gloomy, the RCEP’s entry into force will bring bright

prospects for economic integration in the Asia-Pacific

region and inject a momentum to the world economy.

As an RTA covering the largest geographic area,

benefiting the largest number of people, with the

largest economic scale and the greatest development

potential in the world, the RCEP’s entry into force is of

great significance to economies in the Asia-Pacific region

and beyond. First, RCEP is a modern, comprehensive,

high-quality and mutually beneficial large-scale RTA.

The successful signing of the RCEP will boost

confidence in economic growth and inject certainty

into regional development and the world economy.

Second, RCEP fills in the gaps in the institutional

framework of economic integration in Asia, especially

in East Asia. It will significantly improve the level of

economic integration in East Asia and set a good

example for trade and investment liberalization and

facilitation. RCEP is the first RTA to include the three

major economies of East Asia, marking a milestone in

regional economic integration. Third, RCEP will

promote the integration of regional industrial, supply

and value chains. RCEP will facilitate the free flow of

economic factors, strengthen division and cooperation

in production among its members, promote the

expansion and upgrading of the consumer market,

and build a deep-seated industrial and supply chain

system in the region.

First, the RCEP is comprehensive, high-

standard and inclusive.

In addition to the preamble, the RCEP agreement

contains 20 chapters and four annexes, covering

trade in goods, rules of origin, trade in services,

investment, trade facilitation, intellectual property

rights, e-commerce, cooperation among members

and other rules. As an integrator of trade and

investment rules in the region, RCEP emphasizes

rule-based and development-based orientation. RCEP

has achieved a comprehensive rule arrangement, which

is high-standard, inclusive, principled and flexible.

RCEP will promote intra-regional trade and

investment liberalization and facilitation. Over 90

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046

percent of trade in goods between RCEP members

will be tariff-free, effectively boosting trade in

agricultural products and auto parts within the region.

In the area of trade in services, the openness of all

members is significantly higher than that of the 10+1

agreements concluded with ASEAN. Seven countries

including Japan, the Republic of Korea, Australia,

Singapore, Brunei, Malaysia and Indonesia made

commitments by means of negative list. Eight

countries including China made their commitments

through positive list, which will be converted into

negative list within six years after the RCEP takes

effect. Members will achieve greater openness level in

sectors such as construction, engineering, tourism,

finance, transportation, logistics and other fields.

Demand for manufacturing-related services will be

boosted, and a regional manufacturing- related service

network will be formulated. In the field of trade

facilitation, RCEP members will implement higher

obligations compared with that in the WTO Trade

Facilitation Agreement. Members will take trade

facilitation measures to simplify customs clearance

procedures, strengthen the inspection quarantine of

animal and plant, and reduce unnecessary technical

barriers to trade. These measures will help significantly

reduce intra-regional trade cost and release huge

trade growth potential. In foreign investment area,

members made commitments by means of negative

list in five non-service sectors, including manufacturing,

agriculture, forestry, fisheries and mining, and will

implement measures regarding investment protection,

promotion and facilitation. This will help foster a

transparent, stable, open and convenient regional

investment environment.

RCEP will promote the integrated development

of industries and markets in the region. RCEP uses

accumulative rules of origin to facilitate the flow of

intermediate goods within the region. On the one

hand, it will increase the flexibility and diversity of the

layout of industrial and supply chain, promote the

formation of an advanced transnational industrial

system, create industrial agglomeration effect and

scale effect, and realize the optimal allocation of

resources and efficiency improvement. On the other

hand, it will greatly stimulate the logistics demand,

strengthen regional logistics network, and drive

the development of logistics industry between

economies in this region.

RCEP will contribute to the development of

regional digital economy. RCEP has achieved

comprehensive and high-level provisions on electronic

commerce in the Asia-Pacific region for the first time.

It promotes paperless trade, electronic authentication

and signature, protects personal information of e-

commerce users, the rights and interests of online

consumers, and strengthens regulatory cooperation

against unsolicited electronic messages. It also

reached agreement on key issues such as cross-border

transfer of information and location of computing

facilities. The above measures will provide institutional

assurance for the RCEP members to strengthen the

cooperation in electronic commerce and create a

good environment for its development. These

measures will also enhance mutual policy trust, mutual

regulatory recognition, and corporate communication

among members in electronic commerce, so as to

promote the digital transformation of traditional

industries and digital economy development, and

enhance Asian economies’ ability to participate in

global rules construction in digital trade.

RCEP will promote inclusive and sustainable

development in the region. Considering the

differences in economic development among members,

RCEP follows gradual and flexible principle and

provides transitional periods and exception clause for

the least-developed economies and certain members. It

also sets up two chapters, respectively on small and

medium enterprises and economic and technological

cooperation. These two chapters stipulate that all

parties will cooperate to implement technical assistance

and capacity-building pr0jects, so as to make full use

of RCEP to promote domestic economy, share the

fruits, and enhance efficient and inclusive development

in the region.

Second, RCEP will become the main platform

and driving force for economic and trade

cooperation in the Asia-Pacific region.

RCEP is a new starting point for Asian economy

to move towards a better future and also an important

beginning of a new landscape of global economic

governance. On the one hand, driven by both market

and institutional forces, RCEP will become the main

platform for economic and trade cooperation in the

Asia-Pacific region. Relying on Japan’s financial, capital

and technological advantages, China and the Republic

of Korea’s advantages in high-end manufacturing,

Chapter 2 Hot Issues of Asian Economies

047

emerging digital industry and whole industrial chain,

labor force advantage in Southeast Asia and resource

advantages in Oceania, RCEP can gather the world’s

most complete manufacturing categories, covering

from the high-end to the low-end of the industrial

supply chain. In this way, an effective closed-loop

industrial supply chain could be formed within the

region to remedy the shortcomings of production

and supply chains in members. This prospect will

enhance the resilience of the regional industrial

system, and create new growth momentum in the

Asia-Pacific region in medicine, biology, and science

and technology. On the other hand, the entry into

force of the RCEP shows to the world that openness

and cooperation is the only path for mutual benefit

and win-win outcomes for all economies. It is a major

breakthrough to reduce the negative impact of anti-

globalization trends and increase confidence in

economic and trade cooperation in the Asia-Pacific

region. RCEP’s successful experience will serve as a

driving force for expanding and deepening regional

economic and trade cooperation in the future. It is

expected to promote the establishment of the China-

Japan-Korea free trade agreement, contribute to the

WTO reform, and build a more open, inclusive,

balanced and win-win world economy.

1. Procedural Issues

1.1 Reforming the WTO Negotiation Mechanism

WTO members put forward flexible and open negotiation approach to solve the deadlock in multilateral trade

negotiations. The EU believes that plurilateral negotiations that are open to all WTO members and subject to

most-favored-nation (MFN) principle should be actively pursued in areas where multilateral consensus is

difficult to achieve. Canada proposes ways to modernize the WTO rules, including the “open” plurilateral

agreements that negotiating outcomes are subject to MFN principle, and “closed” plurilateral agreements

that negotiating outcomes apply only to the signatories. Although China is open to plurilateral negotiations,

it emphasizes the necessity of the principle of “consensus” in negotiations, and believes that the issues and

results of WTO reform should be decided by consensus.

1.2 Reforming the WTO Dispute Settlement Mechanism

The WTO Appellate Body has been paralyzed due to the US’s continued blockage of its appointment, which

has greatly damaged the effectiveness of WTO judicial arbitration. In November 2018, China, the EU and other

members submitted two proposals to the WTO on the reform of the Appellate Body. In September 2019,

following the participation of Thailand and Malaysia, 116 members jointly submitted a proposal about starting

the appointment of Appellate Body. However, facing the general consensus of WTO members, the US’s

position has not changed. Considering the impossibilities to solve the Appellate Body crisis in the short-term,

the EU, China and other WTO members sought for an alternative plan. On 30 April 2020, the Multiparty Interim

Appeal Arbitration Arrangement (MPIA), which has been joined by more than 20 WTO members including

the EU and China, came into effect. MPIA is a temporary and alternative plan during the suspension of the

Appellate Body to avoid the appealed cases remain in limbo.

1.3 Reforming the WTO Notification and Transparency Obligations

The US, EU and Japan actively call for the strengthening of WTO notification and transparency obligations in

the field of trade in goods, suggesting that WTO members who fail to effectively fulfill their notification

obligations be punished. In this regard, Canada and China hold a balanced position, emphasizing the

necessity of providing motivations and technical assistance to backward members. The African Group, Cuba

and India hold an opposing position. They emphasize the capacity gap between developing and developed

Column 2.1 Column New Issues on the Multilateral

Trading System Reform and Regional

Trade Agreements Development

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048

members, propose to grant more special and differential treatment to developing members and strengthen

notifications by developed members regarding agriculture, trade in services and measures on intellectual

property rights.

2. Substantive Issues on WTO

2.1 Updating Rules for New Issues

WTO members generally believe that WTO rules need to keep pace with the times, and have promoted

plurilateral negotiations on some new issues, including e-commerce, investment facilitation, services

domestic regulation, micro, small and medium-sized enterprises, as well as trade and environment. On 4

December 2020, the negotiation on Services Domestic Regulation was successfully concluded with the

participation of 67 members. On 10 December 2020, 112 members claimed to conclude the negotiation by

the end of 2022. On 14 December 2020, Australia, Singapore and Japan, which are the three leading parties

of the e-commerce negotiation participated by 86 members, announced that they would complete

substantive negotiations in 2022. On 15 December 2020, negotiations of three joint initiatives on “Trade and

Environmental Sustainability” “Plastics Pollution and Environmentally Sustainable Plastics Trade” and “Fossil

Fuel Subsidy Reform” were launched.

2.2 Strengthening the Rules on “Non-Market Oriented” Issues

In seven joint statements, the US, EU and Japan called for stronger WTO rules on “non-market oriented” issues

such as state-owned enterprises (SOEs) and industrial subsidies. Regarding regulations on SOEs and “public

bodies”, the US, EU and Japan advocate addressing market distortions caused by SOEs and “public bodies”

and demand more transparency obligations on these entities. Regarding regulations on industrial subsidies,

the US, EU and Japan propose to expand the scope of prohibited subsidies, justify a reversal of the burden of

proof for certain types of subsidies, clarify the “external benchmark” for calculating subsidy benefits in

countervailing investigations, and regulate subsidies that cause overcapacity. Regarding regulations of “non-

market oriented” policies and practices in third countries, the US submitted a proposal of “The Importance of

Market-Oriented Conditions to the World Trading System” in February 2020, adding “enterprises are able to

freely access relevant information on which to base their business decisions” as a new “market-oriented”

criteria. China and other developing economies, especially emerging economies, will face a long-term game

with the US, EU and Japan on this issue.

2.3 Improving Rules on Doha Round Issues

China, Canada, India and other WTO members put forward in their WTO reform proposals that the remaining

issues of the Doha Round should be pushed forward. China proposes to address the inequity of disciplines in

agriculture, improve trade remedy rules and conclude negotiations on fisheries subsidies. Canada raises

concerns about tariff escalation and tariff peaks, agricultural support and development issues. India, Oman

and some African and Latin American economies submitted a proposal of “Strengthening the WTO to

Promote Development and Inclusivity” to the WTO, proposing to address Doha remaining issues including

the implementation issues of WTO agreements (e.g. agriculture, trade-related investment measures, trade-

related intellectual property rights, subsidies and countervailing duties), the special and differential treatment,

the agriculture domestic supports and public stockholding, the special safeguard mechanism for agriculture,

and fisheries subsidies. These issues are of great significance to enhancing the relevance of WTO in global

economic governance and meeting the goal of global sustainable development. However, the current

obstacle lies in that the US, EU, Japan and other developed members are only making efforts in promoting

negotiations on fishery subsides, while lacking political momentum and negotiation efforts for other Doha

remaining issues.

Chapter 2 Hot Issues of Asian Economies

049

3. The Development of New Issues in RTAs

3.1 The Development of RTA E-Commerce Provisions in the Digital Age

Due to the slow progress of WTO multilateral rulemaking in the field of global digital trade, the formulation

of new international rules takes place more at the RTA level. The US, Singapore and Australia were the initial major

players that start to promote e-commerce chapters in RTAs. Since then, Canada, the EU and Japan, as well as the

Republic of Korea and China in recent years, have also actively participated in the formulation of RTA digital trade

rules. To date, almost half of WTO members have at least one RTA with an e-commerce chapter. However, the e-

commerce provisions in different RTAs vary greatly. Some RTAs involve a wide range of issues about e-commerce,

while some RTAs only include zero tariff for cross-border e-commerce in line with the multilateral rules, and provisions

about the strengthening of cooperation between regulatory authorities.

At present, the global digital trade rules are mainly dominated by the US and EU, and their differences

are reflected in their RTAs. The position of US is represented by provisions in TPP and USMCA, which excludes

local data storage requirements and emphasizes free cross-border flow of data; The EU explicitly requires data

storage localization, emphasizes the protection of personal information and privacy, and adheres to cultural

exceptions. As a big country in the global digital economy, in recent years, while improving its own digital

economy governance, China has actively participated in global digital governance cooperation through RTAs,

and has formally applied in 2021 to join the Digital Economy Partnership Agreement (DEPA) signed by

Singapore, Chile and New Zealand in 2020. With regard to the regulation of digital economy, China

emphasizes digital sovereignty, and its RTAs include provisions aimed at ensuring national security and data

security, such as local data storage requirement. Japan actively participates in the formulation of global digital

trade rules both at the WTO and at the regional level. It coordinates with the US and EU in digital trade rules

through its RTA with the EU and digital trade agreement with the US. On the one hand, Japan advocates the

free flow of data across borders and the elimination of digital divide between economies; On the other hand,

it also attaches importance to the protection of personal privacy and digital intellectual property rights. The

RTAs signed by the Republic of Korea also emphasize the protection of consumer privacy and personal data,

and include provisions of paperless trade that requires publication of documents on trade regulation and

regards their paper and electronic versions as equally authentic; in other aspects, the Republic of Korea’s

e-commerce provisions in its RTAs show great heterogeneity and flexibility.

3.2 The Development of RTA Sustainability Provisions

Sustainable development is defined as “the development which meets the needs of the present without

compromising the ability of future generations to meet their own needs”. The United Nations 2030 Agenda

for Sustainable Development puts forward three major tasks: the coordinated promotion of economic

growth, social development and environmental protection. It is more important and urgent to make sure that

trade effectively promotes sustainable development for the current global economy under the clouds of

“anti-globalization” and the COVID-19 pandemic. Sustainability clauses first appeared in the RTAs by a handful

of economies such as the US, Canada and the EU. Now more and more RTAs, including those developing

ones (such as Chile and Peru), contain sustainability objectives and relevant clauses, but different RTAs

incorporate sustainable development clauses to different degrees. At present, more comprehensive and in-

depth sustainability provisions are found in RTAs led by developed economies such as the CPTPP and USMCA,

including innovative cooperation mechanisms, provisions to address conflicts between trade and sustainable

development, measures to promote compliance with international or domestic environmental and labor

laws, and regulatory commitments to promote social or environmental objectives; while some other RTAs

only mentioned the importance of sustainable development with no real commitments undertaken. The

sustainability provisions in some RTAs have gone beyond “soft law” and incorporated Investor-State Dispute

Settlement (ISDS) mechanism. However, there is still no consensus to create binding sustainable

development provisions that are subject to dispute settlement. Currently, most economies prefer a “soft law”

approach to sustainable development issues in RTAs, in the form of cooperation mechanisms, consultation

requirements, enforcement mechanisms, and reaffirmation of international standards.

Boao Forum for Asia Asian Economic Outlook and Integration Progress Annual Report 2022

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Overview

051

Part II |

Asian Economic

Integration Progress

Boao Forum for Asia Asian Economic Outlook and Integration Progress Annual Report 2022

052

Overview

053

Overview

In 2020, COVID-19 inflicted heavy losses on the global

economy. With the support of the pandemic prevention

and control measures and macro stimulus policies, the

global economy has re-embarked on the track of

recovery, and the pace of economic integration in the

Asia has been sustained. In 2020, intra-regional trade

in the Asia-Pacific region accounted for 58.5%1 of the

total regional trade, the highest share since 1990. On

January 1st, 2022, the Regional Comprehensive

Economic Partnership (RCEP) officially came into

effect. So far, Brunei, Cambodia, Laos, Singapore,

Thailand and Vietnam, as well as China, Japan, the

Republic of Korea, Australia and New Zealand, have

officially begun to implement the agreement,

marking the sailing of the world's most populous and

largest economic and free trade area. Asia is providing

new impetus to the world in both economic recovery

and the construction of economic and trade rules.

In 2020, facing the demand contraction and

supply shocks caused by global COVID-19, the world

economy fell into recession, and the global trade in

goods declined significantly. In this context, the

export dependency on Asia for Asian economies

continued to increase and has reached new high

since 2012. The degree of trade dependence among

Asian economies also remained high, with ASEAN and

China enjoying their status as the regional center of

gravity. Although bilateral trade in Asia generally

contracted, the trade in goods with China by most

Asian countries increased, helping anchor regional

trade stability against the shocks. Vietnam had

exceptional performance in trade in goods. China’s

export to Vietnam exceeded 100 billion USD and kept

growing. However, the COVID-19 pandemic continues

to pose uncertainties for the future. While world trade

had a strong recovery in 2021, its trend remains

1 Data is from the Asian Development Bank.

uncertain in 2022. Nevertheless, with the RCEP

coming into force and tariff barriers and non-tariff

barriers being significantly reduced, many Asian

economies, and RCEP and CPTPP members may show

higher dependence on trade in goods from the

region .

The Asian Factory is largely a natural product of

the opening up of some Asian economies, driven by

market forces. China has become the center of this

international production network thanks to its huge

domestic market and ample processing capacity.

However, China-U.S. trade frictions and the impact of

COVID-19 have raised concerns about the stability of

Global Value Chains (GVCs) in Asia. Factory integration

in Asia peaked in 2011 and exhibited a downward

trend since then. The fall became most acute in 2019

at the peak of China-US trade conflict. However, the

self-dependence of Asian Factory picked up after the

outbreak of the COVID-19 pandemic. The trade

disputes and the pandemic have not altered the

intermediate product market landscape in Asia.

Before the outbreak of COVID-19, global trade in

services had been growing faster than trade in goods,

playing an increasingly important role in GVCs and

becoming a new driving force for world economy. The

importance of trade in services of Asia and developing

economies has been on the rise. By the traditional

measurement or by value-added, the 25 Asia-Pacific

economies have become more integrated in service

trade compared to outside the region. Despite the

heavy blow of the pandemic, the integration of trade

in services in the Asia-Pacific has been particularly

strong, thanks to their geographical proximity as well

as the increasing contribution of service export

attached with manufacturing goods.

Digital economy and other new forms of

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054

business have expanded the boundaries of trade in

services. Over the years, Asia's trade in digital services

has maintained steady growth, with its share of global

digital services trade rising from 16.6% in 2005 to

25.5%. Within Asia, nearly half of digital services

exports were concentrated in East Asia (46.7%),

followed by Southeast Asia (22.4%), South Asia (20.1%)

and West Asia (10.7%). Among the top ten economies

in the global digital services trade in 2020, the US

ranked first, with Asia accounting for four seats

and Europe for five seats. Asian digital platform

companies have been active in Internet and e-

commerce. In the field of e-commerce, more Asian

entities appeared in the top 10 list by market value,

with China, Singapore and Korea occupying six

positions in total. The development of digital

platforms in Asia also pushed up the digital economy

revenues, which brought Asia’s share in the world

close to 50%. Asian countries' digital transformation

strategies will bring new growth opportunities for

digital trade. With the RCEP coming into force, the

cross-border e-commerce market in Asia will enjoy

huge institutional and opening-up dividends, and

embrace significant cost reduction and further

consolidation of the industrial and value chains in the

region.

In 2020, due to huge uncertainties caused by

COVID-19, many countries have adopted strict entry

restrictions, including mandatory testing, quarantines

and border closures. Tourism in Asia has been hit hard.

According to the United Nations World Tourism

Organization (UNWTO), there were only 400 million

global tourist arrivals in 2020, a year-on-year drop of

74% from 2019. Asia and the Pacific saw an 84% drop

in arrivals due to stricter entry restrictions, while this

number in Africa, Middle East, and Europe and the

Americas recorded 77%, 73% and 68%. In contrast to

hard-hit international tourism, domestic tourism has

been picking up in Asia.

In terms of international direct investment (FDI)

inflow and outflow, Asian economies outperformed

the global average in 2020. In particular, the amount

of FDI flowing into and out of developing Asia has

increased. This shows the resilience and recovery in

investment in Asia amid the ongoing COVID-19

pandemic.

The main source of FDI in Asia is still from within.

While the extent of dependency of Asian economies

on the inward FDI from within remained stable, their

outward FDI dependency on economies within the

region fluctuated greatly and increased dramatically

in 2020. The self-dependence of Asia’s direct

investment (inflows and outflows) rose to nearly 65%

in 2020, showing that Asian economies have maintained

sufficient investment resilience and that the regional

production chains have not been significantly

affected by the COVID-19 and the China-US trade

disputes.

Asia’s financial cohesion has played an important

role in promoting economic growth and safeguarding

regional and global financial stability. At the end of

2020, the total portfolio investment outflow from

Asian economies reached 11.55 trillion US dollars, an

increase of 15.8%. This figure roughly equaled the

growth rate in 2019, slightly higher than the global

level. In 2020, the portfolio investment inflow to Asia

amounted to 8.9 trillion US dollars, growing by 18.40%

and 4 percentage points higher than that in 2019. This

indicates that Asian financial markets have

maintained their attractiveness even during the

pandemic. Among the top ten economies in terms of

the global portfolio investment, only Japan is from

Asia. China is one of the major economies with the

most rapid growth (including outflow and inflow) in

recent years.

Reinforcing the global and regional financial

safety net is a key component in Asian currency

cooperation. The IMF’s lending capacity has been

augmented in September 2021, with issuance of 650

billion USD Special Drawing Rights. In April 2021, the

special draft of Chiang Mai Initiative Multilateralization

(CMIM) signed by the “10+3” financial ministers and

central bank governors, and the Head of Hong Kong

Monetary Authority, came into force. Local currency

funding provisions will promote the use of Asian

currencies. Moreover, since 2020, many central banks

and monetary authorities in Asia have further

promoted bilateral currency cooperation with regard

to local currency swaps and settlements.

According to the GFCI Index 2021, Hong Kong

special Administrative Region of China, Singapore,

Shanghai, Beijing, and Tokyo are listed among the top

10 global financial centers. Asian stock markets are

developing quickly. In 2021, Tokyo Stock Exchange

stood out from its Asian peers by the total stock

trading volume. China had 6 IPOs out of the largest 10

Overview

055

around the globe. Paytm from India and Bukalapak

from Indonesia debuted in their local stock exchanges

as their landmark IPOs. To better attract potential

listing companies (in particular Unicorns) and all

overseas investors, exchanges in Asia have been

actively adopting new technologies. The market force,

technology, and rules and regulations have facilitated

growth of Fintech companies in Asia’s international

financial centers.

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Chapter 3 Merchandise Trade Integration in Asia

057

Chapter 3

Merchandise Trade

Integration in Asia

3.1 Integration of

Merchandise Trade

This section is to measure the Asian economic

integration process in merchandise trade. It is

explained from the three dimensions of integration,

i.e., export reliance on Asia, merchandise trade

interdependence, and bilateral trade flows. The

COVID-19 pandemic in 2020 had resulted in great

demand contraction and supply shocks, which in turn

led to a global recession, as well as a slowdown in

global trade. However, it is found that Asia’s

integration process continues to progress, and the

overall export reliance on Asia has hit a new high since

2012. The role of China and ASEAN as trading hubs

within Asia had not changed. The bilateral trade

between Asian economies dropped dramatically in

1 According to the Chinese Ministry of Foreign Affairs, the Asian economies include Turkey, Bahrain, Iran, Iraq, Israel, Jordan, Kuwait,

Lebanon, Oman, Qatar, Saudi Arabia, Syria, United Arab Emirates, Yemen, Palestine in West Asia; Kazakhstan, Kyrgyzstan, Tajikistan,

Turkmenistan, Uzbekistan, Armenia, Azerbaijan, Georgia in Central Asia; Japan, the Republic of Korea, Mongolia, Democratic People’s

Republic of Korea (DPRK) in Northeast Asia; Myanmar, Cambodia, Indonesia, Laos, Malaysia, the Philippines, Singapore, Thailand, Vietnam,

East Timor, Brunei in Southeast Asia; Afghanistan, Bangladesh, Bhutan, Sri Lanka, India, Maldives, Nepal, Pakistan in South Asia, as well

as Chinese mainland (hereinafter referred to as China), Hong Kong Special Administrative Region of China, Macao Special Administrative

Region of China and other parts of Asia (including Taiwan Province of China). This classification method is the same as the previous part

of this report.

2 Export exposure to Asian economies captures the extent to which one economy relies on Asian economies in trade for goods, which is a

ratio of merchandise exports destined to Asian economies total exports. The higher exports share, the more exports dependence on Asian

economies. Trade openness is an indicator of one economy’s dependence on trade in economic activities, calculated as ratio of imports and

exports on goods and services to GDP. The higher trade openness, the more reliance on trade in economic activities. Merchandise exports

concentration is a measure of the dispersion of exporting categories, calculated using Herfindahl-Hirschman method. In particular, the index

is calculated at the SITC-3 digit level and the trading partners are set to Asian economies. The higher exports concentration means that an

economy is more vulnerable in face of change in trade pattern. To alleviate concerns of the fluctuations in annually economic data, all sub-

indices are calculated as the average of value of the two latest years. Because we need to normalize the sub-indices, and without loss of

generality, we contain countries and areas other than Asian economies (such as Asian regions, European Union, ASEAN, CPTPP countries).

2020, but most economies documented an upward

trend in bilateral trade with China. In 2022, the

pandemic is still one of the biggest uncertainties

affecting Asian trade in goods. By contrast, the

operation of Regional Comprehensive Economic

Partnership (RCEP) Agreement will deepen the

process of trade integration in Asia.

3.1.1 Overall Trend of Asia’s Trade Integration

This section employs the Export Reliance Index on

Asia (ERI-ASIA) to describe the overall trend of the

trade integration of Asian economies.1 The ERI-ASIA is

to measure an economy’s export dependence on

Asia. This is a composite index, which contains three

sub-indices, i.e., export exposure to Asia, trade

openness, and merchandise exports concentration.2

Specifically, this index is the geometric means of the

three normalized sub-indices above. The index ranges

Boao Forum for Asia Asian Economic Outlook and Integration Progress Annual Report 2022

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from 0 to 100, where a higher ERI-ASIA implies that an

economy is more dependent on Asian economies as

a whole. As shown in Figure 3.1, the ERI-ASIA hit a new

high of 14.12 in 2020. It is a remarkable increase

because of the slowdown in global trade. The global

trade in goods decreased by 5.6 percent year on year

for 2020, while Asian trade in goods decreased by 5

percent. For Asian economies as a whole, the total

exports and imports dropped by 3.2 percent and 7

percent, respectively. According to available trade

data from World Integrated Trade Solution (WITS),

only 4 out of 35 Asian economies, i.e., China, Hong

Kong Special Administrative Region of China, Vietnam

and Cambodia, had witnessed positive growth in total

trade in goods. Bilateral trade between Asian

economies shrunk significantly, and the integration of

merchandise trade moved forward with great

difficulty.

Figure 3.1 ERI-ASIA for Selected Asian Economies, 2012-2020

Source: Author’s calculations based on WITS and UNCTADstat.

Table 3.1 presents the ERI-ASIA for selected Asian

economies from 2016 to 2020. As shown in data, there

were significant differences in the ERI-ASIA index

among the selected Asian economies and other

major economies such as European Union (EU) and

the US. It is noteworthy that Hong Kong Special

Administrative Region of China, Macao Special

Administrative Region of China and Singapore were

still the top three economies, with an ERI-ASIA of

50.84, 42.38 and 40.93, respectively. In contrast, China,

Japan and India were the bottom three economies,

with an ERI-ASIA of 9.48, 10.18 and 10.57, respectively.

This is mainly due to the differences in economic sizes

among the Asian economies. In line with this

explanation, the US and the European Union also

reported a lower ERI-ASIA. ERI-ASIA of the US was

6.84 and that of EU was 7.43. Australia, New Zealand

and UK witnessed a larger ERI-ASIA, which were 25.10

and 19.06, and 11.10, respectively.

More importantly, all of the selected economies

(except for India) experienced an increase in ERI-ASIA

for 2020, suggesting that their dependence on Asia

had been deepening. The ERI-ASIAs of the Philippines,

Hong Kong Special Administrative Region of China

and Malaysia increased the most, but those of the

Republic of Korea, Indonesia and Thailand increased

the least. It had been the third year that the

Philippines and Malaysia ranked the top 3 economies

with the largest increases in ERI-ASIA. It is worth

noting that, it was the second year in a row for Hong

Kong Special Administrative Region of China to

witness an increase in this index, partially alleviating

the concern that the increase in 2019 was accidental.

Economies outside Asia had also experienced a

Chapter 3 Merchandise Trade Integration in Asia

059

remarkable increase in their ERI-ASIAs. The ERI-ASIA for

Australia increased by 4.1, followed by New Zealand

and the US. On the other hand, the ERI-ASIA of the EU

increased by less than 0.5, while that for UK remained

constant.

The rise of ERI-ASIAs among the world's major

economies is mainly attributed to the success of

China and other Asian economies in epidemic

prevention and control. Therefore, these increases may

only be a short-term phenomenon. Nonetheless, the

interdependence between Asian economies has a

chance to move on, as the RCEP agreements have

come into force gradually in its member states. Given

the economic size of the RCEP, as well as population

size, there is no doubt that its implementation will

strengthen Asia’s impact on global trade in the future.

Table 3.1 ERI-ASIA for Selected Asian Economies

Economies 2016 2017 2018 2019 2020 Changes

China 7.84 8.83 7.92 8.05 9.48 1.43

Japan 6.90 8.75 8.50 8.74 10.18 1.43

Korea, Republic of 15.16 18.58 21.04 20.96 20.96 0.00

Hong Kong SAR, China 70.43 65.12 46.76 48.45 50.84 2.38

Macao SAR, China 30.31 -- 34.92 40.97 42.38 1.41

South Asia 8.80 10.65 11.06 10.74 9.74 -1.01

India 9.41 10.94 11.15 10.93 10.57 -0.36

Sri Lanka 12.89 13.70 -- -- -- --

ASEAN 15.86 17.65 17.94 18.28 19.43 1.15

Singapore 37.49 38.73 39.19 39.30 40.93 1.63

Malaysia 20.98 23.17 24.92 25.96 27.65 1.69

Thailand 6.36 11.92 12.03 11.81 12.03 0.22

the Philippines 21.03 21.92 20.65 21.91 24.37 2.46

Indonesia 10.55 11.70 11.69 11.69 12.28 0.59

Vietnam 19.29 23.87 24.16 21.83 23.05 1.22

Asia 9.00 11.76 12.35 12.70 14.12 1.42

Australia* 16.73 19.03 19.25 21.04 25.10 4.06

New Zealand* 14.75 16.24 16.39 17.33 19.06 1.73

the US* 5.82 6.78 5.54 5.59 6.84 1.26

EU27* 4.60 7.00 6.93 7.01 7.43 0.42

UK* 9.10 10.00 10.28 11.04 11.10 0.06

Notes: The last column is the difference between 2020 and 2019. The economies with a star are outside Asia, so the indices are not entirely

comparable with their counterparts. -- represents missing values.

Source: Author’s calculations based on WITS and UNCTADstat.

The global pandemic has caused severe

disruptions in supply chains, frequent shipping

backlogs at the ports, and a slowdown in global trade.

Therefore, it is striking to see the increases in ERI-ASIAs

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for selected Asian economies and the other major

economies around the world. This achievement was

largely attributed to the efforts made by Asian

economies to contain the domestic spread of the

coronavirus. Note that developed economies such as

the US have struggled to curb their domestic

epidemic. By contrast, developing economies in Asia

have made significant progress in the containment of

the pandemic. In particular, once the domestic

epidemic was brought under control, Chinese

governments had committed to revitalizing business.

A bundle of fiscal and monetary policies had been

implemented to fix the supply chain crisis. China’s

imports and exports in goods had seen a rapid

recovery, thereby playing the role of a stabilizer for

merchandise trade in Asia.

Looking forward to 2022, global trade will

continue its recovery in 2021, though the COVID-19

pandemic may still be one of the biggest

uncertainties. Thankfully, the positive signals are also

strong. On 1 January 2022, RCEP entered into force in

ten countries. Those economies are six ASEAN

members including Brunei, Cambodia, Laos,

Singapore, Thailand and Vietnam, and four non-

ASEAN countries including China, Japan, Australia and

New Zealand. In addition, the Republic of Korea and

Malaysia started to implement the agreements in

February and March 2022, respectively. The final entry

into force of the RCEP agreement has injected new

impetus into Asian integration. It offers huge potential

for cooperation in respect of regional supply chains

and value chains, and Asian economies are expected

to further increase their export reliance on Asia.

3.1.2 Trade Interdependence Among Key

Members: Past and Present

This section is an update of the status of trade

interdependence among the major Asian economies

by our traditional measure, i.e., the trade dependence

index. The index ranges from 0 to 100 percent,

capturing the extent to which one economy’s total

trade in goods relies on the other economy.1

Table 3.2 presents the merchandise trade inter-

dependence of selected Asian economies for 2020.

Overall, it is shown that Asian economies remained

heavily dependent on Asia, so did RCEP countries and

CPTPP countries. The trade dependence on Asia

remained 70 percent for ASEAN countries, followed by

the Republic of Korea and Japan, i.e., 62 percent and 60

percent, respectively. China's overall trade dependence

on Asia remained at about 50%. Finally, the trade

dependence on Asian economies is 66 percent and 52

percent for RCEP countries and CPTPP countries,

respectively.

Table 3.2 Trade Dependence Index for Selected Asian Economies, 2020 (%)

Of On ASEAN China India Japan Korea,

Republic of Asia RCEP CPTPP

ASEAN 21.16 19.41 2.46 7.67 5.79 69.65 37.01 23.08

China 15.14 -- 1.94 7.02 6.31 50.08 32.60 24.56

India 11.45 12.09 -- 2.21 2.59 55.50 18.05 13.35

Japan 15.05 23.91 1.08 -- 5.58 60.02 24.73 14.91

Korea, Republic of 14.68 24.63 1.72 7.26 -- 62.31 24.74 24.12

RCEP 17.73 22.82 1.98 5.92 4.60 65.99 31.28 21.26

CPTPP 12.43 19.42 1.48 3.82 4.77 51.58 23.27 15.40

Source: Author’s calculations based on WITS and UNCTADstat.

1 This measure is calculated as the ratio of economy X’s total merchandise trade (imports and exports) with economy Y over the economy’s

total merchandise trade with the world. In one extreme case, if the index for economy X on economy Y is equal to zero, the economy is not

trading with the latter economy. If the index is equal to one, then the former economy trades with the latter economy, not with all other

economies.

Chapter 3 Merchandise Trade Integration in Asia

061

The impact of the global COVID-19 pandemic

has not affected the status of China and ASEAN as

Asian hubs for trade in goods. First, intra-regional

trade interdependence between ASEAN member

states was 21 percent for 2020, a decrease of one

percent; while the trade dependence on ASEAN was

above 15 percent for China, Japan, the Republic of

Korea and RCEP member states. Second, Japan, the

Republic of Korea and RCEP countries reported a trade

dependence on China of 20 percent or larger. The

trade dependence on China for ASEAN and CPTPP

countries was also close to 20 percent. Yet, it is

noteworthy that India’s trade dependence on the two

trading hubs remained at a low level, around 12

percent in 2020. Third, thanks to the success in the

epidemic containment, China was the first major

economy to reopen its factories. Its industrial chains

and supply chains were operating stably, and several

production lines even turned back to China again.

Consequently, most economies in Asia, as well as

economies outside Asia, have seen a remarkable

increase in their trade dependence on China.

Figure 3.2 provides a direct way to detect the

evolution of the trade inter-dependence among the

selected economies from 2016 to 2020. It is found that

differences are significant in terms of the pattern of

trade inter-dependence for different economies. First,

although the trade dependence on Asia remained at

about 70 percent for ASEAN, it had been declining

since 2017. In addition, not only the intra-ASEAN trade

dependence but also the bloc’s trade dependence on

other economies such as Japan had declined. By

contrast, the dependence on China had moved up

from 16.49 percent in 2016 to 19.41 percent in 2020,

an increase of 3 percent. Second, the trade dependence

on Asia fluctuated around 50 percent for China, though its

dependence on a single economy varied significantly. On

the one hand, China’s dependence on Japan and the

Republic of Korea kept declining in recent years. On

the other hand, its dependence on ASEAN, RCEP and

CPTPP countries was growing. What is worth

mentioning is that, China’s dependence on ASEAN

had moved to 15.14 percent in 2020, increasing by 2.5

percentage points from 2016. Third, India, similar to

China, also reported an increasing trade dependence

on ASEAN but a decreasing trade dependence on

Japan and the Republic of Korea. But unlike China,

India's trade dependence fluctuated greatly and the

upward trend was not clear. Fourth, the different

patterns for two representative developed economies,

Japan and the Republic of Korea, also deserved more

attention. Japan’s trade dependence on Asia was

mainly increasing, while that of the Republic of Korea

was declining in recent two years. In addition, their

trade inter-dependence had witnessed a slight

decrease in the past five years. Japan’s trade

dependence on ASEAN and China remained constant,

but that of the Republic of Korea experienced

consecutive increases recently. Finally, the RCEP

countries documented a fluctuating trade dependence

on Asia, which was about 65 percent in 2020. It was

found, however, that the trade dependence on Asia had

increased to 51.6 percent for CPTPP countries. RCEP

and CPTPP economies turned out to be less

dependent on Asia economies as a whole, but their

dependence on China was upward.

Figure 3.3 plots the number of economies

reporting Asian economies as their largest trading

partners. According to the available trade data from

WITS, 35 out of 134 economies reported that their

largest trading partners were from Asia, of which 20

economies belong to Asia themselves. This number

was 37 in 2019 meaning a slight decrease. The

number of economies in 2020 reporting China as their

largest trading partners was 24 in 2020, and in 2019

the number was 21. The number of economies

reporting ASEAN as their largest trading partners

decreased to nine economies in 2020. In previous year

the number is 12. Table 3.3 provides the list of specific

economies. It is shown that economies reporting

ASEAN as their largest trading partners were also

mainly Asian economies, including China, Singapore

and Malaysia. On the other hand, economies reporting

China as their largest trading partners distribute unevenly

around the world. Most economies were also Asian

economies such as Japan and the Republic of Korea;

other economies included the EU from Europe, Brazil

and Chile from South America, Ethiopia and Tanzania

from Africa, and Australia and New Zealand from

Oceania. This result suggests an enhancement of the

status of China in global trade, though this country

bore the first brunt of the COVID-19 pandemic.

Boao Forum for Asia Asian Economic Outlook and Integration Progress Annual Report 2022

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Chapter 3 Merchandise Trade Integration in Asia

063

Boao Forum for Asia Asian Economic Outlook and Integration Progress Annual Report 2022

064

Figure 3.2 Trade Dependence Index for Selected Economies, 2016-2020

Source: Author’s calculations based on WITS and UNCTADstat.

Figure 3.3 The Number of Economies with the Largest Trading Partner from Asia

Notes: In addition to the individual economies, we include two other regional economic integration organizations, i.e., the EU and ASEAN.

The sample restricts to economies with complete trade data from 2016 to 2020, including 135 economies.

Source: Author’s calculations based on WITS.

Table 3.3 Economies with the Largest Trading Partner from Asia, 2020

The Largest Partner Economies

ASEAN China; Singapore; Brunei; the Philippines; Malaysia; Thailand; Laos; Cambodia; Fiji

China

European Union; Japan; Korea, Republic of; India; Indonesia; Hong Kong SAR, China; Taiwan,

China; Mongolia; Myanmar; Pakistan; Qatar; Vietnam; Australia; New Zealand; Brazil; Chile;

Peru; Uruguay; Burundi; Democratic Republic of the Congo; Republic of the Congo;

Ethiopia; Kenya; Tanzania

United Arab Emirates Uganda

Palestine Israel

Source: Author’s calculations based on WITS.

Chapter 3 Merchandise Trade Integration in Asia

065

3.1.3 Trade Flows Among Selected Asian

Economies

Table 3.4 presents the trade flows matrix for major

Asia-Pacific economies in 2020 (Panel A), as well as the

growth rates in Panel B.1 Affected by the pandemic,

bilateral trade flows shrunk significantly in 2020.

However, the scale of bilateral trade with China

expanded, suggesting that China is a stabilizer in

regional trade.

Table 3.4 Trade Flows Among Asian Economies and Growth

Rate Year-on-Year, 2020 (USD billion, %)

ASEAN China India Indonesia Japan

Korea,

Republic

Malaysia the

Philippines Thailand Vietnam Australia New

Zealand

From

ASEAN 289.5 216.6 42.8 38.3 100.3 56.4 53.0 26.8 43.2 35.7 31.1 4.9

China 383.7 -- 66.7 41.0 142.6 112.5 56.4 41.8 50.5 113.8 53.5 6.1

India 29.6 19.0 -- 4.4 4.0 4.5 6.2 1.4 3.8 4.5 3.5 0.4

Indonesia 36.5 31.8 10.4 -- 13.7 6.5 8.1 5.9 5.1 4.9 2.5 0.5

Japan 92.3 141.4 9.1 9.2 -- 44.7 12.6 8.8 25.5 17.1 12.1 1.8

Korea,

Republic of 89.1 132.6 12.0 6.3 25.1 -- 9.1 7.1 6.9 48.5 6.2 1.5

Malaysia 65.1 37.8 7.3 7.0 14.7 8.2 -- 4.2 10.8 7.4 5.8 0.9

the

Philippines 10.2 9.6 0.6 0.5 9.9 2.5 1.8 -- 2.9 1.3 0.4 0.0

Thailand 55.5 29.8 5.5 7.6 22.9 4.2 8.7 5.1 -- 11.2 9.8 1.2

Vietnam 23.1 48.9 5.2 2.8 19.3 19.1 3.4 3.6 4.9 -- 3.6 0.5

Australia 26.1 100.1 6.9 3.6 30.3 15.9 4.8 1.5 2.8 4.4 -- 6.9

New Zealand 3.8 10.8 0.3 0.7 2.3 1.1 0.7 0.5 0.6 0.5 5.3 --

Panel A Trade Flows (USD billion)

ASEAN China India Indonesia Japan

Korea,

Republic

Malaysia the

Philippines Thailand Vietnam Australia New

Zealand

From

ASEAN

-9.72 7.58 -17.80 -18.54 -5.24 -0.87 -15.20 -13.10 -10.12 -5.98 -9.93 -14.09

China

6.50 -- -10.94 -10.25 -0.41 1.37 7.52 2.65 10.75 16.13 11.18 6.16

India

-13.53 10.01 -- -3.36 -16.04 -2.95 -1.19 -13.42 -12.80 -18.36 16.72 14.41

Indonesia

-11.97 13.64 -11.92 -- -14.62 -10.06 -7.63 -12.87 -17.78 -4.12 7.63 7.26

Japan

-13.11 4.99 -17.06 -34.23 -- -3.41 -5.23 -17.30 -15.43 3.85 -16.19 -20.89

Korea,

Republic of

-6.32 -2.68 -20.83 -17.42 -11.71 -- 2.64 -14.81 -11.86 0.76 -21.59 5.08

Malaysia

-5.10 12.12 -19.61 -5.47 -6.59 1.10 -- -4.47 -19.93 -12.18 -15.50 -19.35

the

Philippines

-5.65 -1.96 1.08 -45.26 -7.03 -21.74 -3.87 -- -3.02 0.32 -10.21 -16.49

Thailand

-7.26 6.01 -22.35 -10.46 -1.12 -6.59 -12.74 -21.52 -- -3.79 3.19 -12.98

Vietnam

-7.19 17.97 -21.60 -16.21 -5.66 -3.06 -10.60 -4.57 -2.89 -- 3.63 -8.08

Australia

-6.84 -2.83 -28.98 -11.61 -23.12 -8.84 -21.68 -23.77 -9.92 5.08 -- -2.29

New Zealand

-4.38 -2.27 -34.38 0.26 0.04 -0.11 -1.74 -18.29 -5.50 1.53 -7.93 --

Panel B Growth Rate Year-on-Year (%)

Source: WITS, UNCTADstat.

1 Along the row-wise, it gives the value of exports from one economy to its trading partner (in billion US dollars), e.g. the ASEAN economies

export to ASEAN, China, Indonesia, India, Japan, among others; while column-wise indicates how much one economy import from its

trading partners, such as the ASEAN economies import from ASEAN, China, Indonesia, India, Japan and others.

Boao Forum for Asia Asian Economic Outlook and Integration Progress Annual Report 2022

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The intra-ASEAN exports in goods fell below

USD300 billion in 2020, down 9.7 percent year-on-

year. Besides, bilateral exports between ASEAN and

Asia-Pacific economies other than China had also

witnessed negative growth. Exports to Indonesia,

India and Malaysia decreased by more than 15

percent year-on-year. On the other hand, ASEAN’s

imports from India, Japan and Indonesia fell by more

than 10 percent year-on-year. Japan experienced a

sharp decline in exports to economies other than

China and Vietnam. Its exports to Indonesia was even

worse, falling by more than 34 percent year-on-year.

Japan's imports to economies other than New

Zealand were all negative. In contrast, the total trade

in goods between China and ASEAN, which was

China's largest trading partner in 2020, amounted to a

historic high. It was shown that China’s total exports

to ASEAN were USD383.7 billion, up 6.5 percent, and

its total imports from ASEAN amounted to USD216.6

billion, up 7.6 percent. Bilateral trade between China

and other economies recorded generally positive

growth. In particular, import trade increased

significantly.

It is worth noting that the trade performance of

Vietnam in the Asia-Pacific region has been

impressive. Consistent with the forecast in our reports

last year, China’s exports to Vietnam exceeded

USD100 billion for the first time in 2020, amounting to

USD113.8 billion. Meanwhile, the imports from

Vietnam were also close to USD50 billion, amounting

to USD48.9 billion. In addition, the exports of other

Asia-Pacific economies to Vietnam also experienced

positive growth. Total exports from the Republic of

Korea to the country were USD48.5 billion, an increase

of less than one percentage point; and total exports

from Japan to the country were USD17.1 billion, an

increase of 3.8 percentage points. Exports to Vietnam

from Australia and New Zealand also moved up in

2020, but the absolute size was still small when

compared to economies like the Republic of Korea.

This achievement was largely due to the effective

containment measures on its domestic epidemic.

The bilateral trade between China and Australia

was quite resilient, even under the pressure from the

pandemic and tensions in bilateral relationships. The

total exports from Australia to China had fallen but

remained higher than USD100 billion, down 3.8

percent; while the country’s imports from China

moved up to USD53.5 billion, up 11.2 percent. In

addition, some other economies also saw an increase

in bilateral trade with Australia and New Zealand. For

instance, the total exports from India to those two

countries had been up by 16.7 percent and 14.4

percent, respectively.

Table 3.5 presents the merchandise exports in

2020 by 1-digit SITC sections and five regions of Asia.

There were significant differences in export types in

different regions of Asia with obvious comparative

advantages. Northeast Asia is the largest manufacturing

hub in Asia, and its exports of machinery and transport

equipment (SITC 7) reached about USD231,8 billion in

2020, accounting for two-thirds of Asia’s exports. Its

exports of chemicals (SITC 5) and manufactured

goods (SITC 6) accounted for 60 percent. The primary

export categories of Southeast Asia were also

machinery and transport equipment (SITC 7), but the

exports were only a quarter of Northeast Asia.

However, Southeast Asian economies have

comparative advantages in primary commodities.

Among them, the amounts of exports of animal and

vegetable fats, oils and waxes (SITC 4) were USD39.6

billion, accounting for about 90 percent of the total

exports of Asia. Meanwhile, Southeast Asian

economies were also the largest exporters in food and

live animals (SITC 0), beverages and tobacco (SITC 1),

and non-edible ingredients (SITC 2). The amounts of

these exports are USD97.5 billion, USD8.1 billion and

USD43.9 billion, respectively. In contrast, exports in

fuels were dominated by West Asian economies, and

its exports in fuels (SITC 3) amounted to USD251.8

billion, accounting for more than 50 percent of Asia.

South Asia's main exports were finished goods

classified by raw material (SITC 6) and machinery and

transport equipment (SITC 7), which accounted for

about 40 per cent of exports. Exports of various

commodities from Central Asia were relatively small,

with the bulk of exports being fossil-fuel related

products. Exports of fossil fuel lubricants and related

raw materials (SITC 3) amounted to USD40.3 billion.

Compared with 2019, the positive growth was

generally seen in vegetable, grease and wax products

and miscellaneous products. However, other

Chapter 3 Merchandise Trade Integration in Asia

067

commodities such as mineral fuel, lubricants and

related raw materials generally showed negative

growth, which was mainly affected by the fall in

international oil prices.

Table 3.5 Merchandise Exports by Asian Regions, 2020 (USD billion)

Regions Northeast Asia Southeast Asia South Asia Central Asia West Asia Asia

Food and live animals 84.2 97.5 37.7 5.2 28.3 257.0

Beverages and tobacco 6.7 8.1 1.2 1.2 5.2 23.0

Crude materials 35.4 43.9 12.6 7.2 10.4 113.6

Fuels 67.9 101.5 28.1 40.3 251.8 495.8

Animal and vegetable fats, oils,

and waxes 1.8 39.6 1.7 0.3 2.3 45.8

Chemicals 339.2 107.6 54.0 3.6 73.4 608.9

Manufactured goods 602.4 125.7 76.5 12.3 73.0 927.8

Machinery and transport

equipment 2,317.7 608.2 51.2 2.0 73.5 3,282.7

Miscellaneous goods 720.9 197.0 43.9 1.2 45.2 1,037.2

Commodities n.e.s. 127.7 64.6 0.4 7.9 171.5 376.1

Total 4,303.8 1,393.7 307.4 81.1 734.8 7,167.9

Source: WITS.

In summary, although the bilateral trade between

Asian economies shrunk significantly because of the

COVID-19 pandemic in 2020, the role of China and

ASEAN as trading hubs within Asia had not changed.

In particular, China played a role in stabilizing Asian

trade in goods, as well as global trade. The trade

performance of Vietnam was outstanding. It was the

first time that the exports from China to Vietnam

surmounted USD100 billion, and its imports from

Vietnam also continued a soaring trend. Trade in

goods had seen a slowdown across different regions

of Asia, with fuels exports dropping the most. It is

worth mentioning that the pandemic is still one of the

biggest uncertainties in the future. Global trade

experienced a recovery in 2021, but whether this

trend would continue is quite uncertain. However,

given the gradual entry into force of the RCEP

agreement, substantial tariff cuts, as well as the

removal of non-tariff barriers, can be expected. Thus, it

is likely that Asian economies, RCEP countries and

CPTPP countries will become more dependent on

Asia in terms of merchandise trade.

3.2 Integration of Factory Asia

Factory Asia is developed naturally through the

opening up of some Asian economies driven by

market forces. China became the center of this

international production network due to its vast

domestic market and well-developed processing

capacity. However, people began to worry about the

stability of Asian global value chain because of two

big shocks, the first being the fact that China and the US

began to impose tariffs on each other during the first half

of 2018, and the second being the global spread of

COVID-19 since early 2020.

What impacts will COVID-19 have on the

integration process of Factory Asia? This sub-section

will continue to analyze the changes in the degree of

interdependency of Factory Asia1 based on the

relations of major economies on the trade of parts and

components, and the dynamics of dependency of

major parts and components so as to track the

integration process of Factory Asia.

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3.2.1 Stability of Factory Asia

At the beginning of 2020, China and the US signed the

first stage economic and trade agreement after tariff

disputes for more than one year, and the tense trade

situation eased temporarily. However, due to the

global spread of COVID-19 and the unavailability of

data, this report cannot fully present the impact of

Sino-US trade war and COVID-19 epidemic on Factory

Asia, yet the limited data available can still provide

some enlightenment.

From 2019 to 2020, the dependence of

intermediate trade of Factory North American

including the US, Canada and Mexico, on itself

decreased significantly from 0.42 to 0.40, indicating

the decrease of self-sufficiency level of Factory North

American under the turbulent situation. In contrast,

the dependence of intermediate trade of Factory Asia

and Factory Europe on themselves increased

moderately. The self-dependence index of Factory

Europe increased from 0.599 to 0.602 and that of

Factory Asia increased from 0.570 to 0.580. There has

been no fundamental change in the degree of

integration of the world’s three major factories on the

whole by 2020.

Figure 3.4 shows the changing trend of Factory

Asia’s self-dependence from 2008 to 2020. It can be

seen that the integration of Factory Asia reached its

peak in 2011, and began to show a gradual downward

trend. In 2019, in particularly, when the Sino-US trade

war was most intense, the self-dependence of Factory

Asia decreased significantly. It should be noted that

since 2008, there has been gradual decrease in the

self-dependence of Factory Asia. In 2020, the self-

dependence still remained above 0.57. Beyond all

expectations, the self-dependence of Factory Asia

appeared to be rallying since the breakout of COVID-

19 epidemic in 2020.

Figure 3.4 The Index of Self Dependence for Factory Asia, 2008-2020

Source: author’s calculation, based on UN Comtrade database. http://comtrade.un.org.db.

1 We take economies X and Y in a region as examples to explain the calculation method of dependence index: (a) TDxy, which is the trade

dependence index of X on Y, equals to the trade volume of X to Y (export plus import) divided by the total trade volume of X to the rest of

the world. This indicator measures the closeness of X to Y compared with the closeness of X to the rest of the world. It is worth noting that

under normal circumstances, the trade dependence of X on Y is not equal to that of Y on X, i.e., usually TDxy is not equal to TDyx. (b)

TDxa, which is the trade dependence index of X on Region A (e.g. Asia), equals to X’s trade volume (export plus import) to Region A divided by

X’s total trade volume to the rest of the world. (c) TDa, which is the trade dependence index of Region A (e.g. Asia), equals to the volume of trade

within Region A (export plus import) divided by the total volume of trade between Region A and the rest of the world (including trade with other

economies in the region). This indicator measures the degree of interdependence of economies in a region through trade.

Chapter 3 Merchandise Trade Integration in Asia

069

Table 3.6 shows that in 2020, the major

economies in Asia still maintained a high degree of

dependence on trade of intermediate products.

Among them, Hong Kong Special Administrative

Region of China still had the highest degree of

dependence on Factory Asia, with the degree of

dependence as high as 0.79. In the long term, for

Hong Kong Special Administrative Region of China,

the degree of trade dependence on intermediate

products in Asia has been above 0.7 and kept

rising. Other economies with high dependence on

Factory Asia included: Indonesia (0.73), the Philippines

(0.72), Korea (0.66), Malaysia (0.66), Thailand (0.64),

Vietnam (0.64), Japan (0.61), and Singapore (0.61).

Only 2 Asian economies, China and India, had

dependence degree below 0.5, with 0.44 and 0.43

respectively. Despite the global spread of COVID-

19 in 2020, the dependence of most Asian

economies on Factory Asia increased year by year

from 2001 to 2020, such as Japan, the Republic of

Korea, India, Indonesia, Singapore, Malaysia and

Thailand. India, in particular, starting from 0.26 in

2001, increased its dependence on Factory Asia to

0.43 in 2020 through its active participation in the

Asian global value chain.

In 2020, China remained the center of Factory

Asia, which can be seen from the scale of China’s

intermediate trade and the other economies’

intermediate trade dependence on China. In terms of

the trade scale of parts and components, China is 3.6

times that of the Republic of Korea, 2.9 times of Japan

and 1.5 times of ASEAN. Through the comparison

between Table 3.6, Table 3.7 and Table 3.8, we can see

that from 2019 to 2020, the dependence of major

Asian economies (Japan, the Republic of Korea, India,

Indonesia, Malaysia, Singapore, Thailand, the Philippines

and Vietnam) on China in the area of trade of

intermediate products increased more or less. For

example, Japan’s dependence on China in trade of

intermediate products was 0.29 in 2019 and 0.31 in

2020; Thailand’s dependence on China in trade of

intermediate products was 0.18 in 2019 and increased

to 0.21 in 2020. Meanwhile, the dependence of EU,

North America, CPTPP and RCEP on China’s parts and

components kept increasing, from 0.08, 0.16, 0.20

and 0.13 in 2019 to 0.10, 0.18, 0.22 and 0.14 in

2020. Overall, despite the Sino- US trade conflict and

the impact of COVID-19 epidemic, the interdependence

pattern of Factory Asia remained stable by the end

of 2020. China’s position in Asia’s global value

chain had not yet shown signs of weakening.

However, with a gradual declining self-dependence

of Factory Asia in the long term, further internal

market reforms in Asia are becoming urgent.

3.2.2 Distribution of Competitiveness of Asian

Products

Under the impact of Sino-US trade conflict and

COVID-19 epidemic, people are concerned about

supply interruption and global value chain

transfer. This section describes the evolution of

competitive advantage of products of Factory Asia in

the global value chain. Generally speaking, an export

product can be said to have competitive advantage

when it has high volume of export. We choose the

top 22 intermediate products based on their export

volume and compare the changes in their competitive

advantage between 2019 and 2020. From Table 3.9

and Table 3.10 we can see that in 2020, the export of

aircraft, space shuttle and other equipment parts

(SITE7929) from Asia fell out of the top 22 list. However,

we are unable to determine whether this change is

temporary or permanent or due to some random

incidents because of limited data. Meanwhile, the

competitiveness of intermediate glass products

(SITE664) has improved and entered the top 22 list.

As we can see from Figure 3.5, the competitiveness

of Asia’s office machines and other equipment

parts (SITC759) increased in 2020, the export

competitiveness of telecommunication equipment

parts (SITC764) declined, while the export of other

parts and components remained basically stable,

and the trade war and COVID-19 epidemic had not yet

had a great impact on the trade pattern of these

products.

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Table 3.9 Parts and Components of Factory Asia Ranked Among

the Top 22 in Terms of Total Exports, 2020 (USD billion)

SITC Section SITC

Heading Name of Parts and Components Total Value of

Export

6- Manufactured

goods classified

chiefly by material

625 Rubber tyres, interchangeable tyre treads, tyre flaps and inner

tubes for wheels of all kinds 32.2

641 Paper and paperboard 22.0

65 Textile yarn, fabrics, made-up articles, n.e.s., and related products 206.4

664 Glass 18.5

667 Pearls and precious or semiprecious stones, unworked or worked 33.1

67 Iron and steel 132.0

691 Structures and parts of structures, n.e.s, or iron, steel or aluminum 22.6

699 Manufactures of base metal, n.e.s. 54.3

7- Machinery and

transport

equipment

713 Internal combustion piston engines and parts thereof, n.e.s. 36.5

714 Engines and motors, non-electric (other than those of groups 712,

713 and 718); parts, n.e.s., of these engines and motors 33.3

747

Taps, cocks, valves and similar appliances for pipes, boiler shells,

tanks, vats or the like, including pressures-reducing valves and

thermostatically controlled valves

28.1

748

Transmission shafts (including camshafts and crankshafts) and

cranks; bearing housings and plain shaft bearings; gears and

gearing; ball or roller screws; gearboxes and other speed changers

(including torque converters); flywheels and pulleys (including

pulley blocks); clutches and shaft couplings (including universal

joints); articulated link chain; parts thereof

16.5

759 Parts and accessories (other than covers, carrying cases and the

like) suitable for use solely or principally with office machines 266.7

764 Telecommunications equipment, n.e.s. and parts, n.e.s., and

accessories of apparatus falling within division 76 324.5

772

Electrical apparatus for switching or protecting electrical circuits

or for making connections to or in electrical circuits (e.g., switches,

relays, fuses, lighting arresters, voltage limiters, surge suppressors,

plugs and sockets, lamp-holders and junction boxes); electrical

resistors (including rheostats and potentiometers), other than

heating resistors; printed circuits; boards, panels (including

numerical control panels), consoles, desks, cabinets and other

bases, equipped with two or more apparatus for switching,

protecting or for making connections to or in electrical circuits, for

electrical control or the distribution of electricity (excluding

switching apparatus of subgroup 764.1)

119.6

773 Equipment for distributing electricity, n.e.s. 45.7

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(continued)

SITC Section SITC

Heading Name of Parts and Components Total Value of

Export

7- Machinery and

transport

equipment

776

Thermionic, cold cathode or photo-cathode valves and tubes (e.g.,

vacuum or vapour or gas-filled valves and tubes, mercury arc

rectifying valves and tubes, cathode-ray tubes, television camera

tubes); diodes, transistors and similar semiconductor devices;

photosensitive semiconductor devices; light-emitting diodes;

mounted piezoelectric crystals; electronic integrated circuits and

microassembles; parts thereof

689.4

77812 Electric accumulators (storage batteries) 37.6

784 Parts and accessories of the motor vehicles of groups 722, 781, 782

and 783 94.3

8- Miscellaneous

manufactured

articles

813 Lighting fixtures and fittings, n.e.s. 40.7

8211 Seats (other than those of heading 872.4), whether or not

convertible into beds and parts thereof 36.3

8931 Articles for the conveyance or packing of goods, of plastics;

stoppers, lids, caps and other closures, of plastics 19.2

Source: author’s calculation, based on UN Comtrade database. http://comtrade.un.org.db.

Table 3.10 Parts and Components of Factory Asia Ranked Among

the Top 22 in Terms of Total Exports, 2019 (USD billion)

SITC Section SITC

Heading Name of Parts and Components Total Value of

Export

6- Manufactured

goods classified

chiefly by material

625 Rubber tyres, interchangeable tyre treads, , tyre flaps and inner

tubes for wheels of all kinds 36.0

641 Paper and paperboard 21.5

65 Textile yarn, fabrics, made-up articles, n.e.s., and related products 178.0

667 Pearls and precious or semiprecious stones, unworked or worked 46.8

67 Iron and steel 143.7

691 Structures and parts of structures, n.e.s., or iron, steel or aluminium 23.2

699 Manufactures of base metal, n.e.s. 54.8

7- Machinery and

transport

equipment

713 Internal combustion piston engines and parts thereof, n.e.s. 44.9

714 Engines and motors, non-electric (other than those of groups 712,

713 and 718); parts, n.e.s., of these engines and motors 36.3

747

Taps, cocks, valves and similar appliances for pipes, boiler shells,

tanks, vats or the like, including pressures-reducing valves and

thermostatically controlled valves

28.5

Chapter 3 Merchandise Trade Integration in Asia

075

(continued)

SITC Section SITC

Heading Name of Parts and Components Total Value of

Export

7- Machinery and

transport

equipment

748

Transmission shafts (including camshafts and crankshafts) and

cranks; bearing housings and plain shaft bearings; gears and

gearing; ball or roller screws; gearboxes and other speed changers

(including torque converters); flywheels and pulleys (including

pulley blocks); clutches and shaft couplings (including universal

joints); articulated link chain; parts thereof

18.3

759 Parts and accessories (other than covers, carrying cases and the

like) suitable for use solely or principally with office machines 81.2

764 Telecommunications equipment, n.e.s. and parts, n.e.s., and

accessories of apparatus falling within division 76 500.4

772

Electrical apparatus for switching or protecting electrical circuits

or for making connections to or in electrical circuits (e.g., switches,

relays, fuses, lighting arresters, voltage limiters, surge suppressors,

plugs and sockets, lamp-holders and junction boxes); electrical

resistors (including rheostats and potentiometers), other than

heating resistors; printed circuits; boards, panels (including

numerical control panels), consoles, desks, cabinets and other

bases, equipped with two or more apparatus for switching,

protecting or for making connections to or in electrical circuits, for

electrical control or the distribution of electricity (excluding

switching apparatus of subgroup 764.1)

121.2

773 Equipment for distributing electricity, n.e.s. 46.2

776

Thermionic, cold cathode or photo-cathode valves and tubes

(e.g., vacuum or vapour or gas-filled valves and tubes, mercury arc

rectifying valves and tubes, cathode-ray tubes, television camera

tubes); diodes, transistors and similar semiconductor devices;

photosensitive semiconductor devices; light-emitting diodes;

mounted piezoelectric crystals; electronic integrated circuits and

microassembles; parts thereof

592.4

77812 Electric accumulators (storage batteries) 34.2

784 Parts and accessories of the motor vehicles of groups 722, 781,

782 and 783 106.6

7929

Parts, n.e.s. (not including tyres, engines and electrical parts), of

the goods of aircraft and associated equipment; spacecraft

(including satellites) and spacecraft launch vehicles; parts thereof

21.7

8- Miscellaneous

manufactured

articles

813 Lighting fixtures and fittings, n.e.s. 36.3

8211 Seats (other than those of heading 872.4), whether or not

convertible into beds and parts thereof 33.1

8931 Articles for the conveyance or packing of goods, of plastics;

stoppers, lids, caps and other closures, of plastics 17.5

Source: author’s calculation, based on UN Comtrade database. http://comtrade.un.org.db.

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Figure 3.5 Change in the Export of Parts and Components Ranked

Top 22 of Factory Asia, 2019-2020

Source: author’s calculation, based on UN Comtrade database. http://comtrade.un.org.db.

We now examine the changes in the competitive

advantage of Asian economies in intermediate

products. Table 3.11 and Table 3.12 show the trade

dependence of the top 22 intermediate products on

different economies in 2020 and 2019 respectively.

We can see that jewelry (SITC667) mainly depended

on India and Hong Kong Special Administrative

Region of China, which implies that the two

economies have competitive advantage in the

production of this category of products. However, the

dependence of jewelry (SITC 667) on India decreased

from 0.28 in 2017 to 0.20 in 2020, and the dependence

on Hong Kong Special Administrative Region of China

also decreased from 0.22 to 0.15 during the same

period. This situation indicates that other economies

seem to be eroding the competitiveness of India and

Hong Kong Special Administrative Region of China in

such products.

Singapore was the largest supplier of turbojet or

propeller engine parts (SITC714) in Asia. From 2019 to

2020, Singapore’s competitive advantage was further

strengthened as the dependence of such intermediate

products on Singapore increased from 0.10 to 0.12.

From the data of 2020, Japan and the Republic of

Korea had a limited dominance position in these 22

products in Asia. Only piston internal combustion

engine (SITE713) had the highest dependence on

Japan, which was 0.06 (see Table 3.11). On the whole,

the distribution of competitive advantage of Japan’s

parts and components had not changed significantly

from 2019 to 2020.

Among the 22 most important parts and

components, 20 of them were dominated by China in

2020 (see Table 3.13), while the number was 18 in

2019. The two new types of products included glass

(SITC664) and piston internal combustion engine

(SITC713). This showed that despite the impact of

Sino-US trade conflict and COVID-19 epidemic, China

still had competitive advantage in a wide range of

products.

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077

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079

Table 3.13 List of China’s Parts and Components with Competitive Advantage, 2020

SITC

Heading Name of Parts and Components

1 625 Rubber tyres, interchangeable tyre treads, tyre flaps and inner tubes for wheels of all kinds

2 641 Paper and paperboard

3 65 Textile yarn, fabrics, made-up articles, n.e.s., and related products

4 664 Glass

5 67 Iron and steel

6 691 Structures and parts of structures, n.e.s., or iron, steel or aluminium

7 699 Manufactures of base metal, n.e.s.

8 713 Internal combustion piston engines and parts thereof, n.e.s.

9 747 Taps, cocks, valves and similar appliances for pipes, boiler shells, tanks, vats or the like,

including pressures-reducing valves and thermostatically controlled valves

10 748

Transmission shafts (including camshafts and crankshafts) and cranks; bearing housings

and plain shaft bearings; gears and gearing; ball or roller screws; gearboxes and other

speed changers (including torque converters); flywheels and pulleys (including pulley

blocks); clutches and shaft couplings (including universal joints); articulated link chain;

parts thereof

11 759 Parts and accessories (other than covers, carrying cases and the like) suitable for use solely

or principally with office machines

12 764 Telecommunications equipment, n.e.s. and parts, n.e.s., and accessories of apparatus

falling within division 76

13 772

Electrical apparatus for switching or protecting electrical circuits or for making connections

to or in electrical circuits (e.g., switches, relays, fuses, lighting arresters, voltage limiters,

surge suppressors, plugs and sockets, lamp-holders and junction boxes); electrical resistors

(including rheostats and potentiometers), other than heating resistors; printed circuits;

boards, panels (including numerical control panels), consoles, desks, cabinets and other

bases, equipped with two or more apparatus for switching, protecting or for making

connections to or in electrical circuits, for electrical control or the distribution of electricity

(excluding switching apparatus of subgroup 764.1)

14 773 Equipment for distributing electricity, n.e.s.

15 776

Thermionic, cold cathode or photo-cathode valves and tubes (e.g., vacuum or vapour or

gas-filled valves and tubes, mercury arc rectifying valves and tubes, cathode-ray tubes,

television camera tubes); diodes, transistors and similar semiconductor devices;

photosensitive semiconductor devices; light-emitting diodes; mounted piezoelectric

crystals; electronic integrated circuits and microassembles; parts thereof

16 77812 Electric accumulators (storage batteries)

17 784 Parts and accessories of the motor vehicles of groups 722, 781, 782 and 783

18 813 Lighting fixtures and fittings, n.e.s.

19 8211 Seats (other than those of heading 872.4), whether or not convertible into beds and parts

thereof

20 8931 Articles for the conveyance or packing of goods, of plastics; stoppers, lids, caps and other

closures, of plastics

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Chapter 4 Service Trade Integration of Asian Economies

081



Chapter 4

ServiceTradeIntegrationof

AsianEconomies



Before the outbreak of COVID-19, global trade in

services continued to grow faster than trade in goods.

Trade in services is playing an increasingly important

role in global value chains and has become a new

driving force for world economic growth. The portion

of service trade provided by Asian countries and the

group of developing countries out of the world total

continues to rise. China, India and other developing

countries are already among the world's top ten

service import and export countries. In 2020, COVID-

19 wreaked havoc on the world. Lockdown and

quarantine measures adopted by countries to combat

the epidemic have put heavy pressure on global trade.

International trade in goods and services fell by 9.6%,

outpacing the decline in global GDP. Global and Asian

trade in services has recovered in 2021. In the third

quarter of 2021, the export of global service trade

increased by 25%, of which the export of Asian service

trade increased by 26%, higher than that of North

America (18%) and Europe (25%). Amid the recovery

in trade in services, the transport and tourism sectors

rebounded strongly. In the second quarter of 2021,

the transportation industry and tourism industry

increased by 45% and 69% respectively. Although the

impact of low base in 2020 cannot be ignored, strong

consumer demand and the recovery of international

shipping industry are also important reasons. In the

third quarter of 2021, the two industries maintained a

high growth trend, with growth rates of 45% and 54%

respectively.

The rise of new business forms such as digital

economy has widened the boundary of service trade.

Over the years, Asian digital service trade has

maintained steady growth, and its share in global

digital service trade has climbed from 16.6% in 2005

to 25.5%. Among the top ten digital service trade

exporting economies in the world in 2020, Asia

occupies four seats, with India, China, Singapore and

Japan ranking fifth, sixth, ninth and tenth respectively.

Taking cross-border e-commerce as an example, in

2020, the scale of cross-border e-commerce market in

the Asia-Pacific region reached USD450 billion,

USD143 billion in Western European countries and

USD109 billion in North America, accounting for

53.6%, 18.9% and 14.4% of the global cross-border

e-commerce market respectively.

Even during the epidemic period, the dependence

of trade in services of Asia-Pacific economies on the

region remained unabated. Looking ahead, the

integration process of service trade in Asia-Pacific

economies will continue to advance. With the

increase of the added value of the service industry in

the manufacturing industry of the Asia-Pacific

economic system, the transformation and upgrading

of the manufacturing industry of the Asia Pacific

economic system is expected to make a new

breakthrough.

4.1 Asian Service Trade

Integration

In this section, we will analyze the service trade

of major countries and regions in Asia by utilizing the

value-added decomposition method based on the

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082 

world multi-regional input-output table (2021

version) prepared by the Asian Development

Bank. We take 25 Asian economies as research objects

based on data availability to analyze their service trade

of 2020 and the possible impact on Asian economic

integration. 1 Meanwhile, we will tentatively analyze

the impact of COVID-19 epidemic of 2019 on Asia’s

service trade based on the computation results. We

will first analyze the import and export of service

industry in the selected economies via both

traditional and value-added statistical standards, 2

then the position of service industry in the process of

Asian economic integration from the perspective of

production division of manufacturing industry. Finally,

we will analyze the balance of trade in services and

gains from trade of 25 economies.3

First, from the perspective of traditional and

value-added statistics, the degree of regional

integration of 25 Asia-Pacific economies in the field of

service trade is strengthening compared with other

regions. Table 4.1 shows the service exports of 25

economies of 2020 calculated by two statistical

standards (traditional and value-added). It also lists the

average annual growth rates between 2015 and

2020. As can be seen from Table 4.1, the service

exports of 25 economies reached a total of

USD1,201.78 billion in 2020, with average annual

decrease of 3.46% between 2015 and 2020. A total of

USD810.67 billion was exported to outside the region

(an average annual decrease of 6.53%). Although the

service export to within the region was only

USD391.11 billion, it grew annually by 5.67%. The

scales of the three service exports aforementioned of

2020 were lower than those of 2019.4 It is evident that

the impact of COVID-19 pandemic in 2020 on the

service trade of Asian economies is more serious than

in 2019, yet the service trade within 25 economies is

least affected. If we look at the service export from the

value-added standard, the average annual growth of

the value-added export of the service industry within

the region is 7.49%, significantly higher than 5.67%

which is calculated by traditional caliber.

The service trade export of Asia-Pacific major

economies is becoming more and more dependent

on the region. From the data of specific economies,

18 of 25 economies experienced negative growth in

service export. On an economy-by-economy basis, 18

of the 25 economies reported negative growth in

service exports. This is mainly because the service

trade of these economies experienced a long period

of recovery and growth in 2015, and was in a good

shape. The full outbreak of the pandemic in 2020 has

dealt a heavy blow to the trade in services. Therefore,

the average annual growth rate of trade in services

during this period (2015-2020) was relatively low. Of

the four economies with large service sector exports

(more than USD100 billion), China and Singapore

were the most affected. China's exports in services fell

to USD235.2 billion from USD468.9 billion in 2019,

while Singapore's fell to USD187.56 billion from

USD268 billion. India and Japan maintained their

dominant position in service exports, which bucked

the trend and increased during the pandemic. The

two economies grew 14.07% and 4.56% respectively.

However, if we distinguish exports to within the

region from exports to outside the region, all these

four economies experienced positive growth in

service exports to within the region, and this growth

rate was significantly higher than that to outside the

region in all these economies except India. As

illustrated in Table 4.1 of the value-added exports of

service industry of all economies, only nine had negative

average annual growth rates. Adding Australia and

Korea to the aforementioned four economies, the

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1 These 25 economies are Australia, China, Indonesia, India, Japan, Korea, Taiwan Province of China, Bangladesh, Malaysia, the Philippines,

Thailand, Vietnam, Kazakhstan, Mongolia, Sri Lanka, Pakistan, Laos, Brunei, Bhutan, Kyrgyzstan, Cambodia, Maldives, Nepal, Singapore

and Hong Kong Special Administrative Region of China.

2 Trade in services is profoundly different from trade in goods. In the context of global value chain, the import and export of service industry

goes beyond the four forms of service trade defined in the GATS concluded during the Uruguay Round of GATT. An important part of

today’s service trade is the indirect import or export of services value-added, which plays an important part in the division of international

production and the import and export of manufactured products.

3 In the following analysis, for the convenience of expression, we refer the trade between and among 25 economies as intra-regional export

or import, and that between 25 economies and other economies as inter-regional export or import.

4 In 2019, 25 economies exported a total of USD1,794.6 billion of services, including USD413.3 billion to within the region and USD1,381.2

billion to outside the region. (see Boao Forum for Asian Economic Integration, Annual Report 2021)

Chapter 4 Service Trade Integration of Asian Economies

083

Table 4.1 Service Exports of 25 Selected Economies (in Gross Terms and Value Terms),

2020 (USD100 million, %)

Economies

Gross Exports in Services Value-Added in Service Trade

Gross Intra-Region Inter-Region Value-Added Intra-Region Inter-Region

Amount AAGR Amount AAGR Amount AAGR Amount AAGR Amount AAGR Amount AAGR

Australia 455.0 -7.95 270.8 -0.57 184.3 -14.79 -1,025.5 1.02 650.7 7.41 374.8 -6.33

China 2,352.0 -10.33 664.3 3.29 1,687.8 -13.53 8,130.5 1.63 1,999.9 5.69 6,130.6 0.49

Indonesia 147.0 6.71 92.3 9.78 54.8 2.51 328.8 1.01 192.1 7.58 136.6 -5.30

India 1,980.2 14.07 225.5 2.87 1,754.8 16.17 2,228.2 7.62 370.8 4.01 1,857.4 8.44

Japan 1,717.6 4.56 607.6 18.73 1,110.0 -0.12 2,909.8 2.17 1,213.5 9.78 1,696.3 -1.74

Korea,

Republic of 763.3 -4.35 401.6 4.47 361.7 -10.53 1,452.2 -1.87 707.1 4.05 745.0 -6.02

Taiwan, China 501.6 -6.31 265.8 6.48 235.8 -13.98 827.3 1.87 427.9 10.47 399.4 -4.16

Bangladesh 71.7 18.44 18.3 93.47 53.4 12.16 137.4 5.25 25.8 21.37 111.6 2.92

Malaysia 222.8 -7.74 155.1 20.76 67.7 -24.33 518.4 2.66 294.0 23.96 224.3 -8.72

the Philippines 304.2 2.15 84.6 -4.15 219.6 5.40 307.6 2.34 105.0 0.72 202.7 3.24

Thailand 410.8 -10.38 138.4 -11.11 272.4 -9.99 778.7 0.01 334.1 1.92 444.6 -1.29

Vietnam 234.7 -0.34 50.5 -12.37 184.3 5.48 424.8 11.30 145.8 8.74 279.0 12.79

Kazakhstan 51.9 -21.31 17.1 20.56 34.8 -26.77 146.7 -6.91 45.0 11.40 101.7 -11.15

Mongolia 11.0 5.46 6.1 23.97 4.9 -5.17 16.4 3.38 9.7 5.97 6.8 0.25

Sri Lanka 29.6 -13.99 8.3 -4.17 21.3 -16.54 35.5 -10.54 8.5 -5.48 27.0 -11.84

Pakistan 41.8 -10.39 13.1 -9.83 28.7 -10.64 66.3 -7.41 18.2 -6.18 48.1 -7.86

Laos 4.8 -15.93 2.2 4.23 2.6 -22.90 6.8 -10.46 3.6 6.60 3.1 -19.23

Brunei 3.7 -7.70 3.1 -5.34 0.6 -16.13 4.0 -6.79 3.1 -3.42 0.9 -14.70

Bhutan 2.0 -4.84 0.4 -16.47 1.6 1.14 2.2 0.43 0.6 -7.56 1.6 5.39

Kyrgyzstan 4.6 -12.06 1.4 -3.16 3.2 -14.77 6.0 -5.62 1.7 -0.12 4.3 -7.31

Cambodia 31.6 4.55 4.4 5.29 27.2 4.43 31.1 6.47 6.5 10.99 24.6 5.44

Maldives 17.9 -9.39 3.4 -0.45 14.4 -10.93 13.0 -6.15 2.9 -0.91 10.0 -7.41

Nepal 13.2 6.78 7.2 13.01 6.0 1.34 10.0 4.16 5.2 8.76 4.9 0.32

Singapore 1,875.6 -0.18 639.6 15.67 1,236.0 -4.83 1,464.9 4.41 541.7 16.03 923.2 0.01

Hong Kong

SAR, China 768.7 -13.01 229.8 1.40 538.9 -16.52 800.7 -7.43 266.9 8.96 533.8 -11.88

Total 12,017.3 -3.46 3,911.1 5.67 8,106.7 -6.53 21,672.8 1.65 7,380.4 7.49 14,292.3 -0.74

Source: Based on ADB’s 2021 version of the World Input-Output Table.

Note: AAGR refers to the average annual growth rate between 2015 and 2020.

number of economies whose exports exceeded

USD100 billion increased to six. If we further

investigate the value-added service exports to within

the region, only four economies experienced negative

annual growth, while all of them are relatively smaller-

sized ones. With the exception of India, the

Philippines, Vietnam and Bhutan, the average annual

growth rates of intra-regional value-added service

Boao Forum for Asia Asian Economic Outlook and Integration Progress Annual Report 2022 

084 

exports were all higher than those to outside the

region. We can basically reach the same conclusion

when analyzing the service import and value-added

service import of 25 economies in Table 4.2

(corresponding service imports).



Table 4.2 Service Imports of 25 Selected Economies (in Gross Terms and Value Terms),

2020 (USD100 million, %)

Economies

Gross Imports in Services Value-Added in Service Trade

Imports Intra-Region Inter-Region Value-Added Intra-Region Inter-Region

Amount AAGR Amount AAGR Amount AAGR Amount AAGR Amount AAGR Amount AAGR

Australia 331.4 -10.59 92.9 -15.08 238.4 -8.38 854.1 -1.41 368.0 1.05 486.0 -3.05

China 3,541.7 6.52 1,051.1 11.97 2,490.6 4.64 7,416.3 8.70 2,397.3 11.97 5,019.0 7.33

Indonesia 248.1 1.77 103.6 -3.51 144.6 6.92 600.7 1.81 309.4 2.41 291.4 1.19

India 1,141.1 24.97 260.9 21.13 880.2 26.27 1,741.3 13.22 511.0 11.16 1,230.2 14.14

Japan 1,826.3 10.99 423.3 4.15 1,403.0 13.68 2,927.6 5.90 1,029.4 3.44 1,898.2 7.39

Korea,

Republic of 977.1 6.08 312.7 13.35 664.4 3.47 1,587.2 7.41 631.2 9.95 956.0 5.91

Taiwan, China 368.8 -1.29 146.3 9.55 222.5 -5.85 677.8 6.34 310.0 10.14 367.8 3.67

Bangladesh 96.4 4.90 47.3 -4.43 49.0 24.34 217.8 6.29 111.1 4.11 106.7 8.88

Malaysia 317.0 -2.63 159.7 13.33 157.3 -10.68 492.9 2.03 269.8 13.02 223.0 -5.72

the Philippines 154.3 0.95 52.6 -1.29 101.8 2.25 322.6 3.82 145.8 5.63 176.8 2.45

Thailand 507.0 4.52 235.0 18.73 272.1 -2.38 654.7 8.37 310.6 13.41 344.1 4.78

Vietnam 162.4 7.72 45.9 3.39 116.5 9.77 463.4 9.96 258.5 13.72 204.9 6.12

Kazakhstan 86.7 -6.07 16.3 4.39 70.4 -7.76 168.8 -0.92 43.9 5.96 124.9 -2.80

Mongolia 25.2 19.95 8.4 25.79 16.8 17.56 25.9 12.14 10.3 13.42 15.6 11.34

Sri Lanka 21.7 -2.41 7.1 -14.33 14.6 9.77 53.7 -4.66 25.6 -6.47 28.1 -2.80

Pakistan 63.7 -4.40 17.3 -15.77 46.3 3.61 156.8 -1.50 58.4 -3.94 98.5 0.13

Laos 6.0 -4.95 2.1 -5.20 3.9 -4.82 19.4 0.38 12.4 2.75 7.0 -3.13

Brunei 13.5 -4.82 6.7 22.14 6.8 -14.43 22.1 3.19 11.5 20.23 10.6 -5.83

Bhutan 1.4 -16.88 0.9 5.50 0.5 -28.58 3.1 -9.45 2.2 -1.32 0.9 -20.13

Kyrgyzstan 5.7 -14.27 1.8 8.16 4.0 -18.69 12.6 -7.77 3.8 -3.29 8.8 -9.38

Cambodia 22.8 7.89 5.9 -4.78 16.9 15.99 56.1 17.65 34.4 19.76 21.7 14.71

Maldives 7.0 -9.88 1.0 -24.40 6.0 -5.04 8.1 2.73 2.8 1.63 5.2 3.36

Nepal 13.1 5.13 7.1 6.78 6.0 3.37 38.3 6.72 23.7 6.19 14.6 7.60

Singapore 1,755.1 7.70 611.8 13.43 1,143.3 5.25 677.4 9.17 243.8 13.12 433.6 7.27

Hong Kong

SAR, China 518.6 -15.11 293.4 -12.45 225.2 -17.97 478.9 -11.79 255.5 -9.40 223.4 -14.11

Total 12,212.1 -3.15 3,911.1 5.67 8,301.2 -6.08 19,677.6 -0.30 7,380.4 7.49 12,297.0 -3.68

Source: Based on ADB’s 2021 version of the World Input-Output Table.

Note: AAGR refers to the average annual growth rate between 2015 and 2020.

Chapter 4 Service Trade Integration of Asian Economies

085

These analyses show that, on the one hand, the

geographical proximity of Asian economies has

played a role in maintaining economic integration, on

the other hand, the contribution of service export

attached with manufacturing goods plays an important

role in maintaining division of labor and cooperation

and economic integration among Asian economies.

Secondly, the servitization of manufacturing

industry is of great significance to the transformation

and upgrading of manufacturing industry. It is evident

that the share of services value-added in the

manufacturing industry of 25 economies as a whole is

increasing, 1exhibiting the servitization trend of

manufacturing. The total merchandise exports of 25

economies increased by 3.67% annually from 2015 to

2020, and the added value of service industry

included increased by 5.73% annually, which was

2.06% higher than the former. Through individual

investigation of the 25 economies, we can find that

except for six economies, i.e., India, Bangladesh,

Pakistan, Kyrgyzstan, Maldives and Nepal, the average

annual growth rates of the added value of service

industry in the other 19 economies are higher than those

of merchandise exports, i.e., the manufacturing industry of

the remaining 19 economies shows servitization

orientation in varying degrees.

From the last row of Table 4.3, we can see that the

total merchandise exports of 25 economies in 2020

were USD5,347.29 billion. The added value of the

service industry amounted to USD1,602.51 billion, and

the added value of the overseas service industry was

USD370.81 billion. In other words, the added value of

the service industry of the exporting economies in the

total merchandise exports was USD1,231.7 billion. If we

take into account the manufacturing exports and goods

exports of economies other than these 25 economies,

the added value of indirect service exports would be

higher. Compared with USD2,167.26 billion in Table

4.1, which is the total value-added service exports of

the 25 economies, the indirect value-added exports of

services can be truly considerable.

1 We analyze the added value of service industry in the manufacturing exports of 25 economies in Table 4.3. This analysis helps us to

understand the service export, especially indirect value-added service export which are mentioned above from the perspective of production

division and cooperation.

2 see Boao Forum for Asian Economic Integration, Annual Report 2021.

3 Table 4.4 shows that in 2020 China’s service trade deficit is USD118.97 billion, and its intra-regional service trade deficit is USD38.69

billion, the highest among 25 economies, accounting for 32.5% of its total service trade deficit. Australia, Japan and Taiwan Province of

China are the three economies with relatively larger surplus in terms of intra-regional service trade among 25 economies, with a surplus of

USD17.78 billion, USD18.43 billion and USD11.95 billion respectively.

Despite the impact of COVID-19 epidemic, the

service industry of 25 economies has played an ever

stronger role in Asian economic integration by directly

or indirectly participating in the production division

and cooperation of the manufacturing industry in the

region. Although the overseas value-added of the

service industry of most economies in Table 4.3 is

lower than that of domestic or local service industry

of the merchandise exporting economies, even the

share of services value-added in the overseas services

value-added within the region is lower than that

outside the region. Given the significant position of

service industry in the international division of

production, examining the changes in the share of

service industry within the region in Table 4.3 is

very meaningful for us to understand the economic

integration among Asian economies. Between

2015 and 2020, the share of services value-added in

19 of 25 economies has increased with various

degrees, and decreased in only 6 economies. In

2020, the services value-added in 25 economies as

a whole within the region accounted for 43.9% of

the overseas services value-added, an increase of

5.9% over 2015. In 2019, this percentage was 41.3%,

an increase of 2.0% over 2010. 2

Last, measured by value-added trade, China’s

service trade balance changes from a deficit3 to a

surplus of USD71.42 billion. However, this surplus

comes from China’s surplus in service trade outside

the region (the surplus is USD111.16 billion, see Table

4.4). In the context of GVC trade, taking value-added

as the benchmark to calculate the trade balance can

better reflect the actual gains from trade. China still

has the highest deficit in intra-regional trade in

services, with a deficit of USD39.74 billion, higher than

the deficit of USD38.69 billion measured by traditional

statistics. Similarly, India and Vietnam also have a surplus

in service trade (value-added) outside the region,

USD62.72 billion and USD7.41 billion respectively, and

a deficit in service trade within the region, USD14.02

billion and USD11.27 billion respectively. Indonesia

Boao Forum for Asia Asian Economic Outlook and Integration Progress Annual Report 2022 

086 

maintains large service trade deficit both within and

outside the region (USD11.72 billion and USD15.47

billion). Replacing the traditional statistical standard

with the value-added standard, Singapore becomes a

large surplus economy in terms of intra-regional

service trade, together with Australia, Japan and

Taiwan Province of China (intra-regional service trade

surplus of USD28.27 billion, USD18.42 billion,

USD11.79 billion and USD29.79 billion respectively).

Regardless of surplus or deficit, intra-regional

trade in services will strengthen economic ties and

promote integration among Asian economies. The

pattern of holding surplus in (value-added) service

trade outside the regional while holding deficit in

service trade within the region will positively promote

the economic growth and employment of other

economies in the region.

Table 4.3 The Services Content and Composition of the Manufacturing Export in Selected Asian

Economies, 2020 (USD100 million, %)

Economies

Gross Goods Exports Service Content Overseas Service Content

Amount AAGR Amount AAGR Amount AAGR Outside

Share Intra-Region Share

Australia 723.0 2.20 251.7 3.30 37.3 -2.50 61.3 38.7 (3.4)

China 24,662.5 5.47 7,737.3 7.60 1,095.7 7.05 62.9 37.1 (3.5)

Indonesia 1,249.5 -3.28 249.9 -2.53 70.7 -1.94 45.7 54.3 (9.5)

India 2,584.4 3.94 777.7 1.76 178.4 8.78 71.3 28.7 (1.5)

Japan 6,063.9 -0.82 1,750.7 -0.53 307.1 -2.66 65.3 34.7 (-3.3)

Korea,

Republic of 5,231.8 -1.90 1,333.4 -1.62 424.1 -5.03 56.5 43.5 (4.1)

Taiwan, China 3,396.4 4.70 762.2 9.04 289.2 2.03 44.3 55.7 (6.0)

Bangladesh 365.0 3.90 105.3 2.12 27.0 10.29 34.9 65.1 (12.3)

Malaysia 1,659.7 0.90 516.2 4.25 166.7 -3.28 41.9 58.1 (23.5)

the Philippines 361.3 0.73 100.7 4.07 33.7 7.37 43.7 56.3 (11.4)

Thailand 1,872.9 6.88 654.6 11.08 210.5 8.88 51.3 48.7 (10.6)

Vietnam 2,331.7 20.37 621.2 27.52 344.7 28.12 37.5 62.5 (9.1)

Kazakhstan 147.0 9.74 37.3 10.35 5.3 21.45 79.1 20.9 (3.3)

Mongolia 6.2 29.10 1.6 33.47 0.7 41.61 62.6 37.4 (-5.3)

Sri Lanka 63.0 -1.87 15.1 1.51 3.6 -1.17 45.4 54.6 (3.6)

Pakistan 195.0 0.63 36.4 -0.19 5.4 7.09 68.2 31.8 (-10.6)

Laos 13.0 9.27 3.0 12.59 0.8 17.38 31.0 69.0 (9.9)

Brunei 8.0 -22.94 1.5 -5.30 0.4 -10.68 50.4 49.6 (21.2)

Bhutan 2.9 20.41 0.7 21.66 0.2 14.06 25.8 74.2 (21.5)

Kyrgyzstan 9.9 -1.42 1.5 -5.87 0.5 -9.62 67.8 32.2 (-4.7)

Cambodia 101.5 18.47 25.7 20.30 18.0 29.93 23.1 76.9 (14.2)

Maldives 2.4 21.86 0.8 14.54 0.3 12.99 74.6 25.4 (-7.8)

Nepal 8.4 22.45 1.8 20.64 0.6 16.10 36.5 63.5 (-4.8)

Singapore 2,077.1 4.80 815.9 11.45 424.3 6.31 62.1 37.9 (4.3)

Hong Kong

SAR, China 336.4 19.62 222.7 23.32 62.7 4.18 45.0 55.0 (7.6)

Total 53,472.9 3.67 16,025.1 5.73 3,708.1 4.09 56.1 43.9 (5.9)

Source: see Table 4.1.

Note: AAGR refers to the average annual growth rate between 2015 and 2020.

The number in parentheses in the column of “Intra-Region Share” are the changes in the share in 2020 relative to the share in 2011. 

Chapter 4 Service Trade Integration of Asian Economies

087

Table 4.4 Trade Balance of Services in 25 Asian Economies, 2020 (USD100 million)

Exports Baseline (Traditional Statistics) Value-Added Baseline

Trade

Balance

Intra-

Regional

Balance

Inter-

Regional

Balance

Value-Added

Trade Balance

Intra-

Regional

Balance

Inter-Regional

Balance

Australia 123.7 177.8 -54.1 171.5 282.7 -111.2

China -1,189.7 -386.9 -802.8 714.2 -397.4 1,111.6

Indonesia -101.1 -11.3 -89.8 -272.0 -117.2 -154.7

India 839.1 -35.5 874.6 486.9 -140.2 627.2

Japan -108.7 184.3 -293.0 -17.7 184.2 -201.9

Korea, Republic of -213.8 88.9 -302.7 -135.1 75.9 -211.0

Taiwan, China 132.8 119.5 13.3 149.4 117.9 31.6

Bangladesh -24.7 -29.0 4.4 -80.4 -85.3 4.8

Malaysia -94.2 -4.6 -89.7 25.5 24.2 1.3

the Philippines 149.9 32.1 117.8 -14.9 -40.8 25.9

Thailand -96.2 -96.6 0.4 124.0 23.6 100.5

Vietnam 72.3 4.6 67.8 -38.6 -112.7 74.1

Kazakhstan -34.8 0.8 -35.6 -22.1 1.1 -23.2

Mongolia -14.2 -2.2 -11.9 -9.5 -0.7 -8.8

Sri Lanka 7.9 1.2 6.7 -18.2 -17.2 -1.1

Pakistan -21.8 -4.2 -17.6 -90.5 -40.1 -50.4

Laos -1.2 0.1 -1.3 -12.6 -8.8 -3.9

Brunei -9.8 -3.6 -6.2 -18.1 -8.4 -9.7

Bhutan 0.6 -0.4 1.0 -0.9 -1.5 0.7

Kyrgyzstan -1.1 -0.3 -0.8 -6.7 -2.2 -4.5

Cambodia 8.9 -1.5 10.3 -25.0 -27.8 2.8

Maldives 10.9 2.5 8.5 4.9 0.1 4.8

Nepal 0.1 0.1 0.0 -28.3 -18.6 -9.8

Singapore 120.5 27.9 92.7 787.5 297.9 489.6

Hong Kong SAR, China 250.2 -63.5 313.7 321.7 11.4 310.3

Total -194.4 0.0 -194.4 1,995.1 0.0 1,995.1

Source: See Table 4.1 and Table 4.2.

Boao Forum for Asia Asian Economic Outlook and Integration Progress Annual Report 2022 

088 

4.2 The Present and Future of

Digital Trade in Asia

In recent years, rapid changes in digital technology

have facilitated the development of digital trade. According

to the United Nations Conference on Trade and

Development (UNCTAD), in 2020, 63% of the world trade in

services could be digitally delivered. Meanwhile,

digital service trade export from Asia has steadily

increased. In 2020, Asia was the only continent where

digital service trade exports expanded. At current stage,

many Asian economies are actively promoting digital

transformation. The improvement of digital infrastructure,

the breakthrough of digital technology, and the rise of

digital platforms also drive the vigorous growth of

digital trade in Asia. This section introduces digital

trade's definition and measurement, the highlights of

digital trade in Asia as well as its future directions.

4.2.1 Digital Trade: Definition and

Development

4.2.1.1 Definition of Digital Trade

At present, the international community is still

exploring the definition and measurement framework

for digital trade. In March 2020, Organization for

Economic Co-operation and Development (OECD),

WTO, and IMF jointly released the Handbook on

Measuring Digital Trade (hereafter the Handbook). It

defines digital trade as "all trade that is digitally

ordered and/or digitally delivered" and categorizes

digital trade from the nature of trade, the products

traded and the actors involved (see Figure 4.1).

Specifically, digital trade includes: (1) products and

services only digitally ordered, such as products and

services ordered via e-commerce platform and

delivered offline; (2) digitally ordered and digitally

delivered services, such as 5G services, cloud

computing services and digital platform services; (3)

services only digitally delivered, such as offline

ordered and digitally delivered telecommunication

services. The Handbook also emphasizes the critical

role of the digital intermediation platform. Although

the non-monetized information and data are not yet

included in the current definition of digital trade possibly

due to measurement difficulties, they are playing an

essential role in promoting digital trade. Thus, how to

measure and evaluate this kind of information and data

will undoubtedly become an important part when

measure digital trade in the future since they have

played an essential role in promoting digital trade.

Figure 4.1 Conceptual Framework of Digital Trade

Source: OECD-WTO-IMF (2020).1

1 OECD, WTO and IMF. 2020. Handbook on Measuring Digital Trade (Version 1). Note that NPISHs refers to non-profit institutions serving households.

Chapter 4 Service Trade Integration of Asian Economies

089

Definitions of digital trade differ in economies.

The European Union defines digital trade as

“commerce that is enabled by electronic technologies”.1

The US gave it a definition as “commerce in products

and services delivered via the Internet” in 20132 and

extended its scope with the development of digital

technology. At the end of 2021, the Congressional

Research Office of the US stated that digital trade

includes “end-products, such as downloaded movies,

and products and services that rely on or facilitate

digital trade, such as streaming services and

productivity-enhancing tools like cloud data storage

and e-mail”. 3 In China, the White Paper on the

Development of Digital Trade issued by China Information

and Communication Research Institute in 2020 4

depicted that digital trade is a form of trade where

digital technology plays a significant role, and the

major difference between digital and traditional trade

lies in the digitalization of trade methods and trade

products.

4.2.1.2 Measurement and Current Status of

Digital Trade

According to the Handbook, digital trade refers to

all trade that is digitally ordered and/or digital

delivered. The measurement of digitally ordered and

digitally delivered trade are introduced below

respectively.

(1) Digitally Ordered Trade: E-Commerce

The Handbook defines digitally ordered trade as

"the international sale or purchase of a good or

service, conducted over computer networks by

methods specifically designed for the purpose of

Figure 4.2 Sales and Proportion of E-Commerce in Various Economies, 2019

Source: UNCTAD.5

1 https://trade.ec.europa.eu/access-to-markets/en/content/digital-trade-0#:~:text=Digital%20trade%20refers%20to%20commerce,important%

20for%20the%20European%20industry.

2 USTIC (2013). https://www.usitc.gov/publications/332/pub4415.pdf.

3 Digital Trade and U.S. Trade Policy. https://crsreports.congress.gov/product/pdf/R/R44565.

4 http://www.caict.ac.cn/kxyj/qwfb/bps/202012/P020201216506475945126.pdf.

5 https://unctad.org/news/global-e-commerce-jumps-267-trillion-covid-19-boosts-online-sales

Boao Forum for Asia Asian Economic Outlook and Integration Progress Annual Report 2022 

090 

receiving or placing orders”, following the OECD

definition of e-commerce. 1 Therefore, this section

uses the scale of e-commerce to measure the digitally

ordered trade.

Asian economies are at the forefront of

e-commerce development. In 2019, the international

cross-border e-commerce transaction volume

reached USD26.7 trillion, equivalent to 30% of global

GDP that year. B2B transactions amounted to USD21.8

trillion, accounting for 82% of total sales. In 2019, the

cross-border e-commerce transaction volume in the

US ranked first globally reaching USD9.6 trillion,

followed by Japan and China, with their transaction

volume of USD3.1 trillion and USD2.6 trillion

respectively (see Figure 4.2). Korea's cross-border e-

commerce transactions took the highest proportion

of its GDP, standing at 79%; China's B2C cross-border

e-commerce transaction volume ranked first in the

world, with a scale of USD1.5 trillion; Japan's B2B

accounted for the highest share of e-commerce,

reaching 95%.

According to e-marketer, in 2020, retail

e-commerce sales in the Asia-Pacific region

ranked first in the world, exceeding USD2 trillion,

followed by North America and Western Europe (see

Figure 4.3). In terms of growth rate, Latin America lead

the rest of the world (36.7%), and the Asia-Pacific

ranked fourth (26.4%). The COVID-19 pandemic has

accelerated the shift to online spending. The proportion

of online retail sales in crucial global e-commerce

markets to total retail sales has increased from 16% in

2019 to 19% in 2020.2 In 2020, Korea had the highest

online retail share, reaching 25.9%, followed by

China with 24.9%. In terms of the growth rate of retail

e-commerce, the Asia-Pacific region ranked fourth

(26.4%).

1 Page 13 of the Handbook.

2 https://unctad.org/system/files/non-official-document/p01_tdb_ede_wg2021_Fredriksson.pdf;

https://unctad.org/news/global-e-commerce-jumps-267-trillion-covid-19-boosts-online-sales

3 On January 13, 2021, the Blue Book of Overseas Development of Chinese Enterprises: Annual Report of Overseas Development of Chinese

Enterprises (2020) jointly released by Beijing Enterprises Research Base for International Operations of the University of International

Business and Economics and Social Science Literature Publishing House shows that the booming “Stay-at-Home Economy” worldwide due

to the spread of the pandemic over the global market has largely contributed to the rapid growth of the cross-border e-commerce.

https://baijiahao.baidu.com/s?id=1688863671574538387&wfr=spider&for=pc.

4 https://unctad.org/news/global-e-commerce-jumps-267-trillion-covid-19-boosts-online-sales.

The Asia-Pacific e-commerce market is full

of vitality, and China and Japanese cross-border

e-commerce platforms rank among the top 10 in the

world. In 2020, the scale of global cross-border

e-commerce transactions exceeded USD100 billion,

with an average annual growth rate of 30%, much

higher than the growth rate of global trade in goods.3

According to Statista, in 2020, the scale of cross-

border e-commerce market in the Asia-Pacific

reached USD450 billion, that of Western European

countries reached USD143 billion, and that of North

America was USD109 billion, accounting for 53.6%, 18.9%

and 14.4% of the global total respectively (see Figure

4.4). Among the globally active market for the cross-

border e-commerce, with the emergence of

multinational platforms with international influence

(such as China’s Alibaba) and small- and medium-

sized platforms that have regional characteristics and

focus on certain segments (such as Shopee and

Lazada in Southeast Asia focusing on electronic 3C

and apparel fashion). In addition, there is also JD

CENTRAL, a platform for cross-border collaboration of

capital that was jointly built by China’s JD Group and

Thailand’s Central Group and officially launched

online in September 2018. Among the top ten B2C e-

commerce companies in GMV in 2020, China holds

four seats, where Alibaba ranks first, with a turnover of

USD1.1 trillion in 2020; The US occupies four seats,

where Amazon ranks second in the world, with a

turnover of USD0.6 trillion in 2020; Canada's Shopify

ranked fifth, and Japan's Lotte ranked tenth.4 The

US holds four seats, of which Amazon ranks second

in the world, with a turnover of USD.6 trillion in

2020.

Chapter 4 Service Trade Integration of Asian Economies

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Figure 4.3 Sales and Growth Rate of Retail E-Commerce in Various Economies, 2020

Source: E-Marketer.1

Cross-border e-commerce cooperation between

China and ASEAN economies is expected to become

a new growth source for e-commerce platforms. As

can be seen from the report by Google, Temasek and

Bain Capital on economic digitalization and cross-

border e-commerce development in Southeast Asia,

the number of internet users in Vietnam, Thailand, the

Philippines, Malaysia, Singapore and Indonesia

jumped from 360 million in 2019 to 400 million in

2020. During the COVID-19 pandemic, the e-commerce

market in the above six countries bucked the trend

and grew to USD62 billion (up 63% year on year), and is

expected to exceed USD170 billion by 2025 (see

Figure 4.5). The expansion of the e-commerce sector

has partly offset the negative impact of contracting

sectors such as transport, which fell 58% year on year.

Meanwhile, China's e-commerce maintained a

momentum of 9.3% annual growth from 2016 to

2020, with transaction volume rising from RMB26.1

trillion to RMB37.21 trillion. This is supported by

China's huge number of internet users, network

infrastructure, convenient mobile payment and other

1 https://www.emarketer.com/content/global-ecommerce-update-2021;

https://www.emarketer.com/content/global-ecommerce-2020.

factors. With 782 million online shoppers, China has

the world's largest online retail market. Total imports

and exports of cross-border e-commerce reached

RMB1.69 trillion in 2020, up 31.1% (in comparable

terms) (see Figure 4.6), according to the General

Administration of Customs of China (see Figure4.6).

This has greatly facilitated residents' lives and

stabilized employment during the pandemic. Among

them, exports reached RMB1.12 trillion, up 40.1%, and

imports reached RMB0.57 trillion, up 16.5%. The first

category of retail exports was specially traded goods

and unclassified goods. Most of the top ten categories

of retail exports(see Figure 4.7) maintained rapid

growth. Chemical industry and related industrial

products topped the list of retail imports, and most of

the top ten retail imports also maintained rapid

growth (see Figure 4.8). In the first year of the

pandemic, the advantages of cross-border e-commerce

over traditional international trade became clear.

Developed countries still dominated the main

destinations of origin of China's cross-border e-

commerce retail imports in 2020.. In terms of export

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destinations, Malaysia, Singapore and the Philippines

ranked first, third and fifth respectively, indicating that

China has great potential for cooperation with

Southeast Asia in the emerging field of cross-border

e-commerce. ASEAN has been China's largest trading

partner in a row. With the growing influence of emerging

trade patterns such as cross-border e-commerce and

digital trade, China and ASEAN are expected to

continue to deepen economic and trade cooperation

in this area.

Figure 4.4 Global Distribution of the Market Size of Cross-Border E-Commerce, 2020

Source: Statista.

Figure 4.5 Trading Volume and Forecast of the Cross-Border E-Commerce

in Five Southeast Asian Economies

Source: e-Conomy SEA. 2020. At Full Velocity: Resilient and Racing Ahead, by Google, Temasek, and Bain & Company; Lu Wenwen, Lin

Jihong. 2021. Research on China-Asean Cross-Border E-Commerce Cooperation, Asia-Pacific Economy Review, No. 5.

Chapter 4 Service Trade Integration of Asian Economies

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Figure 4.6 Total Imports and Exports of China’s Cross-Border E-Commerce

and Growth Rate (on a comparable basis)

Source: General Administration of Customs of China.

Figure 4.7 Proportion and Year-on-Year Growth of the Top 10 Categories of China’s

Cross-Border E-Commerce Export Retail, 2020

Source: E-Commerce in China 2020.

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Figure 4.8 Proportion and Year-on-Year Growth of the Top 10 Categories of China’s

Cross-Border E-Commerce Import Retail, 2020

Source: E-Commerce in China 2020.

(2) Digitally Delivered Trade: Digitally-Deliverable

Services

According to the Handbook1, potentially ICT-

enabled services is a starting point to measure

digitally delivered trade, though a difference exists

between potential and actual delivery. Potentially ICT-

enabled services, or digitally-deliverable services,

includes: (1) insurance and pension services, (2) financial

services, (3) charges for the use of intellectual property

n.i.e., (4) telecommunications, computer and information

services (hereafter ICT services 2 ), (5) research and

development (R&D) services, (6) professional and

management consulting services, (7) architectural,

engineering, scientific and other technical services,

(8) other business services, (9) audio-visual and

related services, (10) health services, (11) education

services, (12) heritage, and recreational services.

The share of Asia’s digitally-deliverable service

1 Page 13 and page 83.

2 Analyses of trade in ICT services commonly include trade in telecommunications services and in computer and information services. See

UNCTAD Technical Note in ICT Services in 2015 (page 5). https://unctad.org/system/files/official-document/tn_unctad_ict4d03_en.pdf.

export in the world has steadily increased, from 16.6%

in 2005 to 25.5% in 2020 (see Figure 4.9). In 2020, Asia

was the only region in the world where digital trade in

services was growing (see Figure 4.10). Within Asia,

nearly half of digitally-deliverable service exports are

concentrated in East Asia (46.7%), followed by

Southeast Asia (22.4%), South Asia (20.1%), and West

Asia (10.7%). In 2020, the US ranked first among the

top 10 economies in digitally-deliverable service

exports, with Asia taking four seats and Europe five.

Within Asia, India's digitally-deliverable service

exports ranked fifth, China ranked sixth, Singapore

and Japan ranked ninth and tenth respectively (see

Table 4.5). In 2020, ASEAN economies' digitally-

deliverable service exports accounted for 5.7% of the

world, reaching USD180 billion, while that of RCEP

economies accounted for 16.1%, amounting to

USD510 billion.

Chapter 4 Service Trade Integration of Asian Economies

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Figure 4.9 Share of Digitally-Deliverable Services by Region, 2005-2020

Source: UNCTAD.1

Figure 4.10 Growth Rates of Digitally-Deliverable Services by Region

Source: UNCTAD.

1 https://unctadstat.unctad.org/wds/TableViewer/tableView.aspx?ReportId=158358.

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Table 4.5 Top Ten Economies in Digitally-Deliverable Service Exports, 2020

Rank Economies Export

(USD billion)

Share in the World

(%)

Growth Rate

(%) Region

1 the US 5,330.9 16.8 0.8 America

2 UK 2,867.0 9.1 -2.8 Europe

3 Ireland 2,441.5 7.7 9.7 Europe

4 Germany 2,036.6 6.4 0.1 Europe

5 India 1,547.8 4.9 4.6 Asia

6 China 1,543.8 4.9 7.5 Asia

7 France 1,429.4 4.5 -8.0 Europe

8 the Netherlands 1,268.1 4.0 -33.9 Europe

9 Singapore 1,222.7 3.9 -2.0 Asia

10 Japan 1,147.4 3.6 -2.5 Asia

Source: UNCTAD.

Asia has been the leading ICT services and

consulting service exporters. Exports from Asia in

these two industries both account for more than 30%

in the world. Moreover, Asia accounts for 22.3% in the

world’s insurance and pension service exports, 20% in

R&D service, 19.4% in charges for intellectual property,

and 17.1% in financial services (see Figure 4.11). Asian

economies also enjoy comparative advantages in

different sub-sectors (see Figure 4.12). In 2020,

Japan's export of charges for intellectual property

ranked third globally, accounting for 11% in the world,

while its exports of R&D services, financial services and

professional and management consulting services

were also among the top ten economies. Singapore

ranked fourth in both financial services and professional

and management consulting services, accounting for

6% and 8% respectively, while its insurance and

pension services and ICT service were among the top

ten. China ranked third in the world in terms of ICT

service exports, with a 8% share, with its insurance and

pension services and intellectual property charges also on

the top ten list. India ranked second and third in ICT

services and professional and management consulting

services respectively, both services accounting for 10% in

the world.

Figure 4.11 Sub-Sectors of Digitally-Deliverable Services by Region

Source: UNCTAD.

Chapter 4 Service Trade Integration of Asian Economies

097

Figure 4.12 Share of Sub-Sectors in Digitally-Deliverable Services

in Selected Economies

Source: UNCTAD.1

Note: Selected European economies includes Luxembourg, Switzerland, Liechtenstein, Ireland, France, Belgium, Sweden, and the

Netherlands.

4.2.2 Highlights of Digital Trade Development

in Asia

4.2.2.1 Digital Technology Develops Rapidly

Key digital technologies cover semiconductor,

infrastructure such as Information and communication

technology (ICT), transactional and integrating

technologies such as artificial intelligence (AI), as well

as technologies for future. 2 According to OECD,

Asian economies lead the world in application of

ICT and AI IP5 (intellectual property 5) family

patents. Patent applications in China, Japan, and

Korea account for over half of the world's total in

ICT and AI industries. Among the global top 5

economies for ICT and AI patent applications, Asia

occupy three seats, namely Japan, China, and Korea

(see Table 4.6). In terms of ICT patents, in 2018, Japan

ranked first, with 16,133 applications, accounting for a

quarter of global ICT patent applications, followed by

China, the US, Korea, and Germany. China's ICT patent

applications accounted for the highest share of the

country's total patent applications, reaching 53.8%. In

terms of AI patents, Japan also ranked first in the

number of applications in 2017, accounting for a

quarter of global AI patents.



1 Archeological, engineering, scientific and other technical services, other commercial services, health services, education services, heritage

and entertainment services are not shown in the graph since the majority of data for these sub-sectors are missing in 2020.

2 Asian Development Bank. 2021. Asian Economic Integration Report. Annex 8b, page 289-290.

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Table 4.6 Top Five Economies in ICT or AI IP5 Family Patent Applications

Economies Number of 2018 ICT

Patents

Share of the Economy’s Total

Patents (%)

Share in Global ICT Patents

(%)

Japan 16,132.8 34.2 25.1

China 11,476.5 53.8 17.9

the US 10,655.4 36.2 16.6

Korea,

Republic of 9,196.4 51.5 14.3

Germany 2,550.0 16.3 4.0

Economies Number of 2017 AI

Patents

Share of the Economy’s Total

Patents (%)

Share in Global AI Patents

(%)

Japan 1,115.4 1.7 25.2

the US 1,065.1 2.2 24.0

China 791.7 2.6 17.9

Korea,

Republic of 494.1 2.4 11.1

Germany 146.2 0.6 3.3

Source: OECD.

Note: Calculated according to the patent priority date and the inventor's country of residence. The latest available years of ICT and AI patents

are 2018 and 2017 respectively.

In 2021, the US, China and India have the most

significant number of unicorns globally, to a certain

extent, reflecting the latest development of digital

technology in the world. According to the Global

Unicorn Index Report released by Hurun Research Institute

in December 2021, 1 worldwide unicorn enterprises

almost doubled in 2021. There were 487 unicorns

from the US, followed by 301 in China. America and

China together host 74% of unicorns in the world.

India ranked third with 54 unicorns, up by 33 compared

with last year and more than twice the previous year.

The industry focus is different between the US and

China. In the US, Software-as-a-Service (SaaS) and

Fintech industries have one-third of the unicorns,

while in China, e-commerce, health technology, and

artificial intelligence industries attract one-third of the

unicorns. The top 2 unicorns in terms of valuations

come from China, namely Byte Dance and Ant Group,

while SpaceX of the US ranks third.

Asian unicorn enterprises are active in

Fintech, SaaS, e-commerce, artificial intelligence,

sharing economy, and big data.

Table 4.7 list the top three unicorns in

different industries. In Fintech, the most valuable

unicorn is China’s Ant Group. In SaaS, Australia’s

Canva ranks first, followed by China’s Xiaohongshu.

In e-commerce, China’s clothing retailer Shein and

Indonesia’s J&T Express lead the industry, followed

by China’s Cars; Meanwhile, China has the most

e-commerce unicorns (42), followed by the US (28)

and India (15). In the area of artificial intelligence,

China’s Shangtang Technology ranks second. In

sharing economy, Indonesia’s online ride-hailing

platform GO-JEK ranks first, followed by Indian hotel

aggregator OYO. In big data, Ping An International

Smart City of China ranks second.

1 Unicorn is defined as a global start-up founded after 2000 and worth at least USD1 billion, which has not yet been listed on a public

exchange. Data as of November 30, 2021. https://www.hurun.net/en-US/Info/Detail?num=R18H7AJUWBIX.

Chapter 4 Service Trade Integration of Asian Economies

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Table 4.7 Industries of Top Unicorns by Valuations, 2021

nk Industry No. of

Unicorns

% of

Total Value Top Unicorns

1 Fintech 139 19.50%

1. Ant Group (USD150 billion) China

2. Stripe (USD95 billion) Ireland

3. Klarna (USD46 billion) Sweden

2 SaaS 134 10.40%

1. Canva (USD40 billion) Australia

2. Xiaohongshu (USD20 billion) China

3. Airtable (USD12 billion) the US

3 E-commerce 122 8.40%

1. Shein (USD20 billion) China

2. J&T Express (USD20 billion) Indonesia

3. Cars (USD10 billion) China

4 Artificial

Intelligence 84 6.00% 1. Grammarly (USD13 billion) the US

2. SenseTime (USD12 billion) China

5 HealthTech 80 4.70%

1. Ping An Healthcare Technology (USD9 billion)

China

2. WeDoctor (USD7 billion) China

6 Cyber

Security 40 2.50%

1. Tanium (USD9 billion) the US

2. Lacework (USD8.5 billion) the US

3. Fireblocks (USD8 billion) the US

7 Biotech 31 1.90% 1. Biosplice Therapeutics (USD12 billion) the US

2. Tempus (USD8.1 billion) the US

8 Blockchain 30 4.00%

1. FTX (USD25 billion) Bahamas

2. Binance (USD15 billion) Malta

3. Digital Currency (USD10 billion), Kraken (USD10

billion) and Ripple (USD10 billion) the US

9 Sharing

Economy 29 2.40% 1. GO-JEK (USD10.5 billion) Indonesia

2. OYO (USD9.5 billion) India

10 Big Data 27 2.40%

1. Databricks (USD38 billion) the US

2. Ping An International Smart City (USD8 billion)

China

3. Dataiku (USD4.6 billion) the US

Source: Hurun Research Institute.1

1 https://www.hurun.net/en-US/Info/Detail?num=R18H7AJUWBIX.

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4.2.2.2 Digital Platforms in Asia Are Booming

Digital platforms intermediate digital trade,

reshaping the way we work, socialize and trade.

Digital platforms in Asia are constantly emerging. In

2020, among the digital platform enterprises with a

global market value exceeding USD10 billion, the

number of Chinese enterprises ranked first globally.

According to the Platform Economy and Competition

Policy Observation Report released by the China

Academy of Information and Communications

Technology (CAICT) in 20211, by the end of 2020, 76

digital platform enterprises globally had a market

capitalization exceeding USD10 billion, amounting to

USD12.5 trillion in total, with a year-on-year growth

rate of 57%. In terms of the number of platform

enterprises, China and the US had a total of 64 digital

platform enterprises, among which China had 36,

ranking first in the world, the US had 28, India had 3,

and Canada, Brazil, Sweden, Russia, Germany, Korea,

Japan, Singapore, Indonesia each hosted one. In terms

of scale, Chinese and American enterprises accounted

for 96.3% of the total value of digital platforms, with

the American platforms taking 71.5% (USD8.9 trillion),

and Chinese ones 24.8% (USD3.1 trillion).

Asian digital platform enterprises are active

in the internet and e-commerce areas (see Table 4.8).

As of January 10, 2022, China has four seats among

the top ten internet companies in terms of market

value, including Tencent, Alibaba, Meituan, and JD.

In e-commerce, the top ten companies have more

Asian origins, with China, Singapore, and Korea

occupying six seats. China's Alibaba and Meituan

ranked second and third, while JD and Pinduoduo

ranked fifth and seventh. Singapore company Sea and

Korean company Coupang also ranked among the

top ten. Meanwhile, the e-commerce market in

Southeast Asia is expanding. Table 4.9 shows the

online platform with the most visits in Southeast Asia

in April 2021. Shopee, founded by Sea in 2015, is now

the most popular platform in Southeast Asia, with

342 million visits, covering Indonesia, Vietnam, the

Philippines, Thailand, Malaysia and Brazil. The second-

largest online market in Southeast Asia is Tokopedia,

focusing on Indonesian. Lazada, the platform invested

by Alibaba2 ranked third, focusing on Thailand, the

Philippines, and Indonesia.



Table 4.8 Top Ten Companies by Market Capitalization in Internet and

E-Commerce Industries

Rank Internet

Domain Economies Market Value

(USD trillion)

E-Commerce

Domain Economies

Market

Value (USD

trillion)

1 Alphabet

(Google) the US 1.78 Amazon the US 1.61

2 Amazon the US 1.61 Alibaba China 0.35

3 Meta

(Facebook) the US 0.89 Meituan China 0.16

4 Tencent China 0.55 Shopify Canada 0.14

5 Alibaba China 0.36 JD China 0.11

6 Netflix the US 0.24 Sea (Garena) Singapore 0.10

7 PayPal the US 0.22 Pinduoduo China 0.07

8 Meituan China 0.16 Mercado Libre Argentina 0.05

9 Shopify Canada 0.14 Coupang Korea, the

Republic of 0.04

10 JD China 0.11 eBay the US 0.04

Source: https://companiesmarketcap.com.3

1 http://www.caict.ac.cn/kxyj/qwfb/ztbg/202105/P020210528594083206416.pdf.

2 Alibaba acquired control of lazada in 2016. https://www.alibabagroup.com/en/news/article?news=p160412.

3 https://companiesmarketcap.com/internet/largest-internet-companies-by-market-cap/.

Chapter 4 Service Trade Integration of Asian Economies

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Table 4.9 The Most Visited Online Platforms in Southeast Asia, April 2021

Time Order Name Region/Country Southeast Asia Visits in Millions/Month

1 Shopee Southeast Asia 342.8

2 Tokopedia Indonesia 137.3

3 Lazada Southeast Asia 128.4

4 Bukalapak Indonesia 30.4

5 Blibli Indonesia 20.6

6 Tiki Vietnam 15.6

7 Sendo Vietnam 7.4

8 Zalora Southeast Asia 6.9

9 Qoo10 Southeast Asia 3.7

Source: Similar Web, Web retailor1.

The vigorous development of digital platforms is

accompanied by enormous cross-border flow of data.

The data flow in Asia has shifted from America to Asia.

In 2010, Asia's internet traffic flowed to the US and

Canada the most, accounting for 49.2%, and this

proportion dropped to 24.9% in 2019. The ratio of

bandwidth flowing to economies within Asia

increased from 37.8% in 2010 to 54.0% in 2019.2 In

2019, China's cross-border data traffic ranked first

globally, accounting for 23% of global cross-border

data traffic, and the US ranked second, accounting for

12%. China's data flow has also shifted from the US to

Asian economies in the past two decades. The

proportion of data flow to and from the US in China's

two-way data flow has dropped from 45% in 2001 to

25% in 2019. To and from Asian economies data flow

currently account for more than half of China's total,

with Vietnam accounting for 17% and Singapore

accounting for 15%.3

Data were obtained on January 10, 2022.

1 https://www.webretailer.com/b/online-marketplaces-southeast-asia/.

The data cover online marketplaces (either pure-play marketplaces or retailers with a third-party marketplace) with more than 2.5 million

monthly visits from within Southeast Asia. The data excluded three marketplaces with more than 2.5 million monthly visits from Southeast

Asia, but for which Southeast Asia represents less than 5% of their global traffic: JD.com (5.1 million visits), Amazon (3.8 million) and

Taobao (3.1 million).

2 Table 6.2 of Asian Economic Integration Report released by ADB in 2021, page152.

3 UNCTAD. Digital Economy Report 2021, page 20.

The expansion of digital platforms has also

led to an increase in digital revenue, with Asia

absorbing nearly half of the world total. According

to the Asian Economic Integration Report released in

2021, in 2019, the digital revenue in the world reached

USD3.8 billion, of which USD1.8 billion were in Asia,

accounting for 48.1%, followed by 22.1% in the US.

Within Asia (see Figure 4.13), China's digital revenue

accounts for 32.8% (USD1.2 billion) of the world total,

and Australia, New Zealand, and Japan accounted for

6.4% (USD240 million). Asian economies are excelled in

their e-commerce and gained a 58% share of global e-

commerce revenue. E-commerce is the most

profitable industry in the digital sector, with a revenue

of USD1.92 billion. Online travel ranked second (USD1

billion), with 37.8% revenue from Asia, and advertising

technology came after (USD330 million), with 33.3%

from Asia.

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Figure 4.13 Share of Digital Revenue by Economy

Source: ADB. Asian Economic Integration Report in 2021.1

4.2.2.3 Digital Transformation Strategies Bring

Opportunities to Asian Digital Trade

The digital transformation strategies of Asian

economies will bring new growth opportunities

for digital trade. As shown by Table 4.10, Asian economies

have actively introduced digital transformation

strategies. For example, Singapore issued the Research,

Innovation and Enterprise 2025 Plan (RIE 2025) in 20202,

focusing on four areas: (1) manufacturing, trade and

connectivity, (2) human health and potential, (3) urban

solutions and sustainable development, (4) smart

nation and digital economy. In 2021, China released

the 14th Five-Year Plan for Digital Economy Development

and put forward the development goals for 2025

around the data factor market, industrial digital

transformation, digital industrialization, digital public

service and digital economic governance system. 3

India put forward the Digital India strategy in 2015,

which mainly focused on three aspects: digital

infrastructure construction, digital government

services, and digital education for citizens. Among

them, the key measures of digital infrastructure

include introducing Aadhaar electronic biometric

identification system and a unified electronic financial

payment interface. In September 2021, India

launched the Ayushman Bharat Digital Mission

(ABDM)4, aiming to alleviate medical difficulties. ABDM

mainly includes four contents: health ID, information

of medical facilities, residents' health cloud storage

and information of medical professionals. By October

2021, ABDM had included 1.3 billion health IDs, 1,538

health facilities, 3,212 approved doctors, and 120

thousand downloads of medical records.5

1 Asian Economic Integration Report 2021, page 193.

2 https://www.nrf.gov.sg/rie2025-plan.

3 http://www.gov.cn/zhengce/content/2022-01/12/content_5667817.htm.

4 https://pib.gov.in/PressReleasePage.aspx?PRID=1758520.

5 https://www.gsma.com/asia-pacific/wp-content/uploads/2021/10/181021-Digital-Societies-in-Asia-Pacific-2021_final.pdf.

Chapter 4 Service Trade Integration of Asian Economies

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Table 4.10 Digital Transformation Strategies in Selected Asian Economies

Economies Strategy

Japan Priority Policy Program for Realizing Digital Society, 2021

e-Japan Strategy, 2001

Korea, Republic of Korean New Deal 2.0, 2021

China The 14th Five-year Plan for the Development of Digital Economy, 2021

India Ayushman Bharat Digital Mission, 2021

Digital India, 2015

Thailand Thailand 4.0, 2016

Malaysia Malaysia Digital Economy Blueprint, 2021

Singapore Research, Innovation and Enterprise 2025 Plan, 2020

the Philippines Digital Cities 2025, 2021

The Philippines Digital Strategy for 2011 to 2016, 2011

Indonesia Roadmap Digital Indonesia 2021-2024, 2021

Brunei Digital Economy Masterplan 2025, 2019

Vietnam Vietnam’s Future Digital Economy towards 2030 and 2045, 2019

Laos Laos Digital Transformation Methodology, 2018

Myanmar Digital Economy Roadmap, 2019

Cambodia Cambodia Digital Economy and Society Policy Framework 2021-2035, 2021

Bangladesh Digital Bangladesh & Vision 2021, 2019

Iran Digital Iran (2020-2025), 2019

Kazakhstan Digital Kazakhstan (2018-2022), 2017

Mongolian National Digital Transformation for Mongolia, 2021

Nepal Digital Nepal Framework, 2018

Pakistan Digital Pakistan Policy, 2018

Sri Lanka National Policy Framework, 2019

Tajikistan Digital Economy in Tajikistan, 2019

Uzbekistan Digital Uzbekistan 2030 Strategy, 2020

Source: Collected by the author.

Active participation in agreements related to

digital trade plays an important role in Asian

economies’ digital transformation. The CPTPP and RCEP,

which involve many Asian economies, includes

specialized content for digital trade. Pure digital trade

agreements include Digital Economy Partnership

Agreement (DEPA) between Singapore, Chile and New

Zealand, US-Japan Digital Trade Agreement, Singapore-

Australia Digital Economy Agreement (SADEA), and the

recent Singapore-UK Digital Economy Agreement

finalized in December 2021. Digital trade agreements

help reduce barriers to digital trade and enhance

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104 

exchanges and cooperation in digital trade. DEPA

includes three important themes: digital trade

facilitation, trustworthy data flow, and building trust in

digital systems.1DEPA is divided into 16 modules and

economies can choose to participate in the modules

that interest them. The modular structure dramatically

improves the feasibility of DEPA and injects new

vitality into the development of digital trade in Asia.2

CPTPP and RCEP both have chapters related to e-

commerce, but differ in the focus of digital: CPTPP

opposes mandatory disclosure of software source

code and prohibit mandatory data localization, while

RCEP, with members from various stages of development,

pays more attention to rules-of-origin, e-commerce,

SME development and liberalization in goods and

service trade.

4.2.3 The Future Directions of Digital Trade in Asia

4.2.3.1 Enhance Consumer Protection in the

Digital Age

Consumers in the digital age are enjoying a more

convenient life, but are also concerned about data

and privacy protection, digital platform reliability,

product safety. In 2019, more than half of the world's

population were internet users.3 However, a global

survey4 by the Center for International Governance

Innovation (CIGI) in 2019 showed that 80% of the

respondents expressed concerns about online privacy

protection, and 53% were more worried than a year

ago. Less than half of the respondents believed that

the government had made enough efforts to protect

online data and personal information. In terms of trust

in the internet, 25% of the respondents said they

didn't trust the Internet, and this distrust has made

people disclose less information, use internet more

selectively and shop less online. 44% of the

respondents said they were sometimes cheated by

fake news; Respondents believed that social media

platforms were an essential source of fake news. When

1 Digital trade facilitation includes digital identity, paperless trade, electronic invoice, Fintech; Data flow includes personal data protection,

cross-border data flow, government data opening, data innovation and regulatory sandbox; Digital system trust includes artificial

intelligence, online consumer protection, small and medium-sized enterprise cooperation and digital inclusiveness.

2 https://www.mti.gov.sg/Improving-Trade/Digital-Economy-Agreements/The-Digital-Economy-Partnership-Agreement.

3 https://data.worldbank.org/indicator/IT.NET.USER.ZS.

4 The survey cooperated with Internet Society and UNCTAD, involving 25 economies, including Australia, China, India, Indonesia, Japan,

Pakistan, Russia, and Korea.

https://www.cigionline.org/cigi-ipsos-global-survey-internet-security-and-trust/.

5 https://www.cigionline.org/cigi-ipsos-global-survey-internet-security-and-trust/.

6 https://unctad.org/news/building-back-better-requires-stronger-competition-and-consumer-protection-digital-economy.

purchasing internet-related equipment, residents in

developing countries are willing to pay a higher price

for safety. In contrast, residents in developed countries

pay more attention to price, which may be due to

stricter supervision of product safety or better

remedial mechanisms.5 In the digital age, consumers

are also confronted with information asymmetry

problems and various risks, such as being unable to

judge the product quality and firm trustworthiness,

having trouble in goods return, or understanding

complicated terms, and being easily cheated by

digital frauds. Vulnerable groups, such as people with

inadequate digital education, the disabled, and the

elderly, also have difficulty in receiving information or

adapting to new technologies, and may be more likely

to fall into scams. Since the pandemic, more and more

economic and social activities have been conducted

online, making consumer protection, especially for

vulnerable people, urgent and important. 6

Meanwhile, enhancing consumer protection in the

digital age can boost consumer confidence in

transactions and help promote economic growth

after the pandemic.

Cross-border consumer protection becomes

increasingly important. Digital platforms have

made cross-border transactions more and more

common. However, how to return defective goods

across borders? Who should pay for the cost and who

should supervise the process? How to ensure that

goods from across the border are safe? Is there a

platform for online dispute resolution? There are not

yet clear answers to these concerns in many countries.

ASEAN made the attempts relatively early. The ASEAN

Committee on Consumer Protection (ACCP) was

established in 2007. Its essential purpose is to ensure

that all member countries have consumer protection

measures, build consumer remedy and product recall

mechanisms, strengthen consumer access to

information, and enhance institution capacity. At

Chapter 4 Service Trade Integration of Asian Economies

105

present, all ASEAN member countries have implemented

consumer protection laws and the consumer protection

and product recall websites have been established in

ASEAN,1 notifying real-time product recall information.

The future strategic objectives of ASEAN in consumer

protection include: provide specific policies in

e-commerce, unfair contract terms, product safety, and

labeling; organize training sessions, develop online

interactive and distance learning tools, and enhance

consumer protection ability and awareness; continue

efforts in areas such as dispute settlement measures and

remedial mechanisms.2 Cross-border consumer protection

should also pay attention to the cooperation and

coordination of cross-border law enforcement agencies.

Meanwhile, since Asian countries are in various

development stages, possible externalities should be

reduced through international cooperation mechanisms.

Otherwise, poor-quality products are more likely to

flow into the market with weak consumer protection,

thus harming consumer health.

The responsibilities and obligations of the

digital platform should be further clarified. Large

digital platforms collect an enormous amount of

consumer data and profit from it. However, platform

information leaks are common, and many countries

lack legislation on digital platforms' responsibilities.

Although some economies require that consumer

data collection should be in the minimum range, the

digital platforms have substantial control over the

information to be collected. Consumers can only

agree to various contract terms for using digital

platform services, with little bargaining power. Also, it

is often unclear what kinds of data are collected by the

platforms and consumers may be forced to see

advertisements related to their browsing history without

prior consent. Big data-enabled price discrimination

incidents frequently occur. These facts all point to the

possibility of the abuse of consumer data by the

digital platforms. Further, some digital platforms have

a vast market share, forcing merchants to bind to their

own platform only, causing substantial harm to

market competition and consumer welfare. Therefore,

legislation on responsibility and obligation of the digital

1 www.aseanconsumer.org.

2 Refer to ASEAN consumer protection action plan.

https://aseanconsumer.org/read-publication-new-asapcp-2025-and-implementation-schedule-2021-2025;

https://aseanconsumer.org/file/post_image/ASAPCP%20Implementation%20Schedule%20(2021%20-%202025)%20-%2030Apr21.pdf.

3 https://www.samr.gov.cn/xw/mtjj/202110/t20211030_336274.html.

platforms is an essential aspect of consumer protection.

Some economies are improving the supervision of

digital platforms. For example, in December 2020, the

European Union introduced the Digital Services Act

and the Digital Market Act. The former defined

seventeen new obligations for online platforms, while

the latter introduced the concept of "gatekeeper" for

large-scale online platforms and formulated regulations

accordingly. In February 2021, China issued the Anti-

monopoly Guideline on Platform Economy, aiming to

prevent and stop platform monopoly. In November,

China introduced the Guide for Classification and

Grading of Internet Platforms and the Guide for

Implementing the Main Responsibility of Internet Platforms

(both are drafts for comment). The former outlined the

classification and supervision of Chinese Internet

Platforms. The latter stipulated the obligations of

proof of fair competition, governance on an equal

footing, and open ecology for internet platforms,

especially for bigtechs.3

Data security and privacy protection are

important issues. In the digital age, there are risks of

data been misused by enterprises, as well as illegally

collected and sold by individuals. Many offline

communities or recreational venues are increasingly

keen to use digital access control technologies such

as face recognition, but may not be able to strictly

protect the data. During the epidemic, big data

technology has contributed to containing infection.

However, the information disclosure of infected cases

sometimes caused doxing and cyber violence,

arousing widespread public concerns. What is the

boundary between enterprises, individuals, and

governments to collect and use data? What responsibility

do they bear? How do individuals take legal measures

to protect their privacy? These issues need to be

addressed urgently. Some Asian economies have

been putting forward data and privacy protection

policies (see Table 4.11). From 2020 to 2021, Singapore,

Japan, the Republic of Korea, New Zealand, and China

upgraded or passed data protection laws, while

Brunei, India, Indonesia, Vietnam, and Sri Lanka are

closer to adopt their own data protection

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106 

frameworks.1 However, some Asian economies have

not yet put in place data protection laws. After the

epidemic, cybercrimes and fraud incidents have

increased dramatically, leading to higher demand for

data and privacy protection. Moreover, personal data

and privacy protection is the legitimate right for citizens in

the digital age. Adequate data and privacy protection

policies can help consumers build trust in digital

technologies and systems, enhance their sense of

security in digital activities, increase their willingness to

share data and use digital platforms, and further

promoting future development of digital trade.



Table 4.11 Data and Privacy Protection Policies in Selected Asian Economies

Economies Main Legislations

Japan

The Act on Improving Transparency and Fairness of Digital Platforms, 2020

Act on the Protection of Personal Information (APPI), 2017

Amended APPI 2020 (as amended in 2020)

Korea, Republic of Personal Information Protection Act, 2011 (as amended in 2020)

China Personal Information Protection Law, 2021

Cybersecurity Law, 2017

India The Information Technology (Intermediary Guidelines and Digital Media Ethics Code) Rules, 2021

Information Technology Act, 2000

Australia Privacy Act 1988 and States Privacy Acts

New Zealand Privacy Act, 1993 & Privacy Act, 2020

Thailand Personal Data Protection Act (PDPA), 2019

Malaysia Personal Data Protection Act, 2010 and its Public Consultation Paper in 2020

Singapore Personal Data Protection Act, 2012

the Philippines Data Privacy Act, 2012

Indonesia

The draft of the Personal Data Protection Act, 2021

Government Regulation No. 71, 2019

MOCI Regulation No. 20, 2016

Law No. 11 of 2008 on Electronic Information and Transactions and its amendment Law No. 19

of 2016

Brunei Public Consultation Paper on Personal Data Protection for the Private Sector, 2021

Data Protection Policy, 2014

Vietnam

Draft Decree on Personal Data Protection, 2021

Law on Network Information Security, 2015

Law on Cyber Security, 2018

Laos Law on Electric Data Protection, 2017

Myanmar Law Protecting the Privacy and Security of Citizens, 2017

1 https://fpf.org/blog/event-report-from-digital-x-adb-driving-digital-development-across-asia-and-the-pacific-trade-offs-or-synergies-data-

privacy-and-protection-as-an-engine-of-data-driven-innovation/.

Chapter 4 Service Trade Integration of Asian Economies

107

(continued)

Economies Main Legislations

Cambodia Sub-decree on Establishment of National Internet Gateway, 2021

E-commerce Law, 2019

Bangladesh Digital Security Act (DSA), 2018

Mongolia Personal Secrecy Act, 1995

Sri Lanka The Bill to provide for the Regulation of Processing of Personal Data, 2021

Information and Cyber Security Strategy 2019-2023, 2018

Iran Personal Data Protection and Safeguarding Draft Act, 2019

Kazakhstan The Personal Data Law, 2013 (as amended in 2020)

Nepal The Privacy Act 2075, 2018

Pakistan The revised draft of the Personal Data Protection Bill, 2021

Tajikistan The Law on Personal Data, 2018

Uzbekistan The Law on Personal Data, 2019

Source: Deloitte Asia Pacific Privacy Guide 2020-2021, and author collections.

4.2.3.2 Narrow Digital Divide in ICT Infrastructure

and Human Capital

Information infrastructure provides the bases for

digital trade development; however, the digital divide

in infrastructure between regions, countries, and even

within countries restricts the development of digital

trade and is more likely to aggravate inequality. In

terms of information infrastructure, although Asia has

a large population and a large number of netizens,

there is room for improvement in internet penetration,

and in bridging the gap between urban and rural

areas (see Table 4.12). According to International

Telecommunication Union (ITU), in 2021, the share of

Internet users in the Asia-Pacific region is 61%,

compared with 87% in Europe and 81% in America. In

2020, the share of Internet users in urban Asia was

75%, while that in rural areas was only 35%.1 In terms

of fixed broadband subscriptions per 100 people,

Europe ranks first, with an average of 34 subscriptions

per 100 people, and America and Asia rank second

and third, with 23 and 15 subscriptions respectively.

Regarding mobile subscriptions per 100 people, Asian

has 108 subscriptions, with 118 and 114 in Europe and

America respectively. There is also a significant gap

among Asian countries. For example, there are 43.6

1 In the same year, the proportion of urban and rural Internet users in Europe was 87% and 80% respectively, and that in the Americas was

83% and 60%.

fixed broadband subscriptions per 100 people in

Korea, 33.6 in China, but only 1.1 in Pakistan. There are

166.6 mobile cellular subscriptions per 100 people in

Thailand and 83.6 per 100 people in India, only half of

that in Thailand.

The digital divide is not only in infrastructure

but also in digital human capital across economies.

The continuous upgrade of digital technology also

propels vigorous development of the online education

industry. Education in today's world is increasingly

dependent on the assistance of digital technology.

Students can review in-class knowledge and take

extra-class lessons on platforms. Future education

may be more deeply integrated with digital technology

and become more tailor-made. After the outbreak of

the pandemic, more and more economies have

shifted their education online. However, it is undoubtedly

a challenge for families and students who have not yet

or not sufficiently got access to the internet.

Regarding the proportion of households with internet

access at home, 99.8% of households in Korea have

internet access at home, but only 23.8% in India.

Regarding the school internet access index, Singapore

scored 6.2, China scored 4.6, and Pakistan scored 3.6.

And the average years of schooling is 12.8 years in

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108 

Japan, 6.5 years in India, and only 5.2 years in Pakistan.

The current gap in information infrastructure will not

only directly have implications on the growth of

the digital industries but also on the efficiency of

learning and teaching, thus having a profound

impact on human capital accumulation, income

discrepancy and social equity.

Table 4.12 ICT Infrastructure and Education Gap in Asia

Economies

Fixed

Broadband

Subscription per

100 People

Mobile Cellular

Subscription

per 100 People

The proportion

of Households

with Internet

Access at

Home

School

Network

Access (1-7, 7 Is

the Best)

Average Years

of Education

Japan 34.5 152.0 96.9 5.2 12.8

Korea,

Republic of 43.6 137.5 99.8 5.8 12.2

China 33.6 117.9 --4.6 8.1

India 1.6 83.6 23.8 4.6 6.5

Indonesia 3.9 130.1 78.2 4.8 8.2

Kazakhstan 13.9 134.1 92.4 4.9 11.9

Malaysia 10.4 135.1 91.7 5.3 10.4

Pakistan 1.1 79.5 34.1 3.6 5.2

Qatar 10.3 131.8 95.0 5.6 9.7

Saudi Arabia 22.7 124.1 99.5 4.4 10.2

Singapore 25.9 144.1 98.4 6.2 11.6

Thailand 16.6 166.6 85.2 4.6 7.9

Vietnam 17.2 142.7 74.8 4.1 8.3

Sources: International Telecommunication Union (ITU), World Bank, United Nations Development Program (UNDP), World Economic Forum

(WEF).1

4.2.3.3 Resolve Market Segmentation and Regulatory

Arbitrage Problems

There are significant differences in digital trade

regulations among economies around the world,

which increase the compliance cost of enterprises

and lead to market segmentation. Different

economies have introduced various policies on cross-

border data flow and privacy protection. The

operating rules that enterprises adapt to in one

market may not be suitable in another market, thus

increasing costs of information acquisition and

compliance for enterprises. For instance, the

regulations in Asian economies, the EU, and the US

vary, embedding difference focuses and concerns. For

example, the EU and China pay more attention to

1 Due to data availability, we use the latest data available by January 2022. The data of fixed broadband subscription (per 100 people) and

mobile cellular subscription (per 100 people) are from the World Bank. The former indicator has data in 2020. The latter indicator has data

in 2019 for the US and data in 2020 for other economies.

Data on the proportion of households that can access the internet at home comes from the International Telecommunication Union (ITU).

Data are available in 2018 for India, in 2019 for Japan, Malaysia and the US, and in 2020 for other economies.

Data on the average years of education in 2019 are from UNDP.

School internet access index comes from the World Economic Forum available in 2017.

2 https://www.forbes.com/sites/forbestechcouncil/2020/07/29/the-privacy-mindset-of-the-eu-vs-the-us/?sh=46b171ea7d01.

privacy protection, while the US advocates the free

flow of data. In May 2018, the European Union

implemented the General Data Protection Regulations

(GDPR), which clarified privacy rights and the specific

conditions of cross-border data flow. In March 2018,

the US Congress promulgated Clarifying Lawful

Overseas Use of Data (CLOUD) Act, requiring American

enterprises to ensure that the authorities can access

all stored data, including data stored on foreign

servers. This directly contradicts GDPR and increases

the uncertainty of enterprises.2 In China, the Personal

Information Protection defines the management of

personal information processing, and has data

localization requirements, which is different from the

position of some developed economies. Moreover,

Chapter 4 Service Trade Integration of Asian Economies

109

Asia countries have divergent practices over whether

individual consent is required for personal data

transmission. For example, in Indonesia, written

permission is required in most cases, while in Australia,

the Philippines, Singapore and Thailand, obtaining

consent is an optional condition for data transmission.

Besides, Asian economies’ regulations differ on

whether data can be transmitted to economies with

adequate data protection standards. 1 Diverse

regulations may entail compliance cost for enterprises

and impede digital trade in Asia.

Rule differences may also lead to regulatory

arbitrage. Many Asian economies have introduced

privacy protection laws (see Table 4.11) or

strengthened supervision of platforms. For instance,

China, Malaysia, Brunei, Indonesia and Vietnam have

data localization requirements. 2 The Intermediary

Guide and Code of Ethics for Digital Media issued by

India in 2021 requires large social media platforms

such as Facebook and Twitter to conduct additional

due diligence and also requires the platforms to

appoint chief compliance officers, contact persons

and public complaints officers. Then, for enterprises, it

may be more advantageous to set up platforms s in

localities with weaker supervision, to make use of the

loopholes in cross-border supervision, or to serve the

target market offshore rather than having physical

entities. According to the Asian Economic Integration

Report 2021, 34 Asian economies have some form of

data protection legislations, 6 have draft legislations,

and 16 have no data protection legislations.3 There is

a big gap in data protection legislations in Asia, which

increases the possibility of regulatory arbitrage.

However, the development of digital trade is bound

to be accompanied by the cross-border data flow.

Ensuring data security and consumer privacy while

promoting safe data flow is an important issue to be

solved. Coordinating regulatory discrepancies,

mitigating possible regulatory arbitrage, and further

expanding the Asian digital trade market are key

components for Asia to work together in the future.

Asian economies should promote the

formulation and cooperation of international

rules in digital trade. At present, regional

1 ADB. Asian Economic Integration Report 2021, page 207-298, Annex 8e.

2 https://theaseanpost.com/article/southeast-asias-data-localisation.

3 Page 245.

agreements involving digital trade signed one after

another already have inconsistencies in the articles,

causing market segmentation and regulatory

arbitrage problems. The existing trade agreements,

such as DEPA, RCEP, CPTPP, and USMCA, have formed

common expectations on some issues, such as

electronic authentication, paperless trade, internet

security, but significantly differ in other areas, such as

cross-border data flow, data localization, intermediary

platform governance, source code, and open

government data. It reflects the differences in

interests and development stages of different

economies. Moreover, there are still many problems to

be further explored, such as digital tax, social media

content supervision, platform anti-monopoly,

platform responsibility. However, Asian economies

still lack an intergovernmental cooperation

mechanism in digital trade. In the future, Asian

economies should work together and strengthen

international exchanges and cooperation, build an

Asian market with coordinated and harmonized

regulations, pay attention to the connection with

other international rules, and promote the long-run

development of digital trade.

4.3 Key Service Industry

Analysis

This section focuses on the interdependency

analysis of the Asian tourism industry, a key service

industry. In 2020, Asian tourism was hit hard as many

economies adopted strict entry restrictions, including

mandatory testing, quarantines and border closures,

in the face of uncertainty about the pandemic (see

Figure 4.14). According to the United Nations World

Tourism Organization, the number of global tourist

arrivals was just 400 million in 2020, down 74% year-

on-year from 2019. Of these, Asia and the Pacific saw

an 84 percent drop in arrivals due to the implementation

of stricter entry restrictions. In addition, the number of

inbound tourists from Africa fell 77 percent, the

Middle East fell 73 percent, and Europe and the

Americas fell 68 percent.

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110 

Figure 4.14 Year-on-Year Change in Global Arrivals to Asia by Region, 2020

Source: United Nations World Tourism Organization (UNWTO).

The plunge in tourist arrivals had dealt a huge

blow to the tourism industry in various economies

(see Table 4.13). Asia has long been a popular

destination for international tourists, and tourism is an

important industry for some Asian economies. After

the outbreak of the pandemic, the tourism’s share of

GDP in Southeast Asia fell from 11.8% in 2019 to 5.8%

in 2020, and jobs related dropped from 13.4% to

11.3%. Tourism revenue in Thailand and Cambodia

dropped to about 30% of 2019 levels. In 2020, tourist

arrivals in the Philippines were 1.48 million, down

sharply from 8 million in 2019, and the tourism's share

of GDP plummeted from 13% to 5.4%.

In contrast to the hard-hit cross-border tourism,

some domestic tourism markets are gaining

momentum while doing their part to prevent and

control infections. In China, for example, the year-on-

year tourism decline narrowed significantly in the

third and fourth quarters of 2020 (see Figure 4.15).

From the supply side, the tourism industry has been

transforming itself by creating "tours on live

broadcasting" "VR tourism" "intelligent tour guide"

and many other business forms, boosting the

economic vitality. From the demand side, "contact-

free vacation” “suburban tour“ “tours upon reservation"

have become the key words for consumers. The

Japanese government also launched the “Go To

Travel” campaign in July 2020 to support the

development of domestic tourism, where participants

can receive travel fee reductions. In July 2020,

Indonesia's Ministry of Tourism and Creative Economy

launched the nationwide “Indonesia Care” campaign

to implement a comprehensive health management

system and verification procedures to gradually

restore domestic tours.



Chapter 4 Service Trade Integration of Asian Economies

111

Table 4.13 Year-on-Year Change in Tourism Revenue of Major Asian Economies

ASEAN and China-Japan-

Korea

Tourism Revenue

USD billion,

2019

USD billion,

2020

GDP Share, 2019

(%)

GDP Share, 2020

(%)

Brunei 0.73 0.53 5.60 4.10

Cambodia 6.97 2.37 25.90 9.00

Indonesia 64.70 34.50 5.90 3.20

Laos 1.89 0.91 10.00 4.80

Malaysia 41.80 17.60 11.70 5.20

Myanmar 5.50 2.07 5.90 2.20

the Philippines 90.00 52.80 22.50 14.60

Singapore 39.20 15.70 11.10 4.70

Thailand 106.50 41.70 20.10 8.40

Vietnam 23.20 11.95 7.00 3.50

China 1665.60 667.20 11.60 4.50

Japan 373.00 234.90 7.10 4.70

Korea, Republic of 73.20 39.90 4.40 2.40

Sources：Statista, World Bank, The World Travel & Tourism Concil (WTTC), IMF.Amro, Edited by BFA Academy.

Figure 4.15 Year-on-Year Change in Domestic Tourist Arrivals in China, 2020

Source: China Tourism Academy.

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112 

The pandemic poses huge challenges for

updating Asia-Pacific Tourism Interdependency Index.

This dependence index was constructed by calculating

the ratio of international tourist arrivals from other

Asian economies to the total international arrivals

from the world. It is used to show the dependency of

one economy’s tourism market on Asia and the Pacific

region. From the result, despite the plunge in tourist

arrivals in 2020 due to the pandemic, Hong Kong

Special Administrative Region of China inbound

tourism market still ranked first in 2020 in terms of

dependence on Asia, excluding Chinese mainland, at

89.94%, surpassing Malaysia (89.03%), Taiwan Province

of China (85.93%) and Japan (82.69%) (see Figure 4.16).

Looking back to 2019, the dependence of the

inbound tourism market of Chinese mainland on Asia

was 94.71%, while that of the inbound tourism market

of Hong Kong Special Administrative Region of China

on Asia was 92.94%, Malaysia 91.11%, Taiwan Province

of China 89.09% and Japan 84.12%, and it is easy to

see that the dependence of inbound tourism of major

economies on Asia has declined.

In 2020, due to the severe impact of the pandemic,

major Asian economies regulated inbound tourism

strictly through route control, entry quarantine and

other measures, resulting in declining dependence of

tourism exports of the above-mentioned economies

on the Asian market (see Table 4.14). Indonesia which

experienced a decline on its dependency on Asia from

2017-2019 with a drop of nearly 10%, is the only

economy that has an increasing dependence ratio on

Asian tourism exports. But, in 2020, the total number

of inbound tourists to Indonesia was about 4.05

million, down 74.8% year-on-year compared to about

16.11 million in 2019, including 3.05 million inbound

tourists from Asia, down 73.2% year-on-year compared

to about 11.4 million from Asia in 2019.

Table 4.14 Tourism Dependence Index on Asia and the Pacific Region for

Selected Economies, 2017-2020 (%)

Number Economies 2017 2018 2019 2020

1 China 92.45 91.25 94.71 --

2 Hong Kong SAR, China 92.01 92.62 92.49 89.94

3 Malaysia 92.55 91.24 91.11 89.03

4 Taiwan, China 89.26 88.97 89.02 85.93

5 Japan 84.00 84.60 84.12 82.69

6 Korea, Republic of 80.79 82.11 83.36 77.86

7 Singapore 77.47 76.90 76.42 66.79

8 Indonesia 79.44 71.48 70.79 75.27

9 Australia 51.63 49.73 49.76 44.56

10 the US 31.53 29.77 30.33 28.51

Sources: Tourism official agency and statistical office of each economy.

Table 4.15 shows the interdependence in

international inbound tourists among different

economies in Asia and the Pacific. There was no

obvious change in the overall pattern of tourism

export dependence among the economies. The

neighboring economies being the main trading

partners is the prominent feature of Asian tourism.

Due to the impact of the pandemic control, the selected

economies’ tourism export dependence on China fell

by 2~15 percentage points year-on-year in 2020.

Chapter 4 Service Trade Integration of Asian Economies

113

Figure 4.16 Tourism Dependence Index on Asia and the Pacific Region for Selected Economies, 2020

Sources: Tourism official agency and statistical office of each economy.

Note: Index of China in 2020 missed due to data unavailability.

Table 4.15 Interdependence Among Different Asian and the Pacific Economies, 2020 (%)

on B

of A China Malaysia

Hong

Kong

SAR, China

Singapore Korea,

Republic of Japan Indonesia Taiwan,

China

the

US Australia

China (VF) -- -- -- -- -- -- -- -- -- --

Malaysia (TF) 9.35 -- -- 35.66 2.76 1.72 16.43 1.39 1.13 1.68

Hong Kong

SAR, China (TF) 75.83 0.58 -- 0.64 1.12 1.41 0.72 2.95 2.26 1.32

Singapore (VF) 13.04 5.61 2.15 -- 3.27 4.59 16.70 2.26 4.50 7.53

Korea,

Republic of (VF) 27.25 1.93 3.53 0.71 -- 17.10 2.65 2.65 8.75 0.92

Japan (VF) 25.98 1.86 8.41 1.34 11.86 -- 1.89 16.87 5.33 3.49

Indonesia (TF) 5.92 24.18 0.06 6.92 1.86 2.28 -- 0.88 2.26 6.32

Taiwan,

China (VF) 8.06 5.28 12.89 3.62 12.98 19.57 4.04 -- 6.01 1.37

the US (TF) 4.98 0.00 0.00 0.00 5.78 9.17 0.00 1.20 -- 2.75

Australia (TF) 11.76 3.22 3.15 4.17 2.82 5.18 2.01 1.81 9.66 --

Sources: Tourism official agency and statistical office of each economy.

Note: “--” =figure or data not (yet) available; TF: International tourist arrivals at frontiers (excluding same-day visitors); VF: International

visitor arrivals at frontiers (tourists and same-day visitors). China did not publish the data of International tourist arrivals in 2020.

Boao Forum for Asia Asian Economic Outlook and Integration Progress Annual Report 2022 

114 

Focusing on China's inbound tourism market,

the country saw a precipitous drop after the Spring

Festival in 2020. According to statistics released by the

Ministry of Culture and Tourism and the China Tourism

Academy, China received a total of 27.47 million

inbound tourists in 2020, down 81 percent year-on-

year. According to the China Tourism Academy,

China's top 15 inbound tourism source markets of

2020 were Macao Special Administrative Region of

China, Hong Kong Special Administrative Region of

China, Myanmar, Vietnam, Taiwan Province of China,

the Philippines, Mongolia, Korea, Russia, Japan,

the US, India, Indonesia, Malaysia and Canada.

Against the backdrop of closer economic and trade

ties between China and the Philippines, the Philippines

jumped to become China's third largest foreign

source market in 2020. A survey on travel intentions

and attitudes of potential visitors to China conducted

jointly by the China Tourism Academy and Google in

2020-2021 shows that 8 percent of overseas people

are considering visiting China if the epidemic is

effectively contained in the next two years and

economies generally liberalize their border restrictions.

China ranked 6th in the list of overseas destinations

that global tourists plan to visit.



Chapter 5 FDI Integration in Asia

115

Chapter 5

FDIIntegrationinAsia



The inflows and outflows of foreign direct

investment (FDI) in Asian economies1 showed better

performance than the rest of the world in 2020. Both

the inflows and outflows of FDI in Asian developing

economies increased. Despite the continuing COVID-

19 pandemic in the world, Asian economies obtained

resilient investment and economic recovery.

Asia itself is still the main source of FDI inflows.

While the intra-Asia dependence on the inward FDI

remained stable, the intra-Asia dependence on the

outward FDI fluctuated greatly and increased sharply

in 2020. Consequently, the self-dependence of Asia’s

direct investment (inflows plus outflows) rose to

nearly 65 percent.

5.1 Current Status of FDI

Integration in Asia

5.1.1 Higher Intra-Asia FDI Dependence

An economy’s FDI inter-dependence index

measures the extent of one economy’s dependence

on another in the FDI flows (inflows plus outflows) and

is calculated as the share of the FDI flows with a

particular economy in the total FDI flows with the

world. An economy’s FDI dependence on Asia is

calculated as the ratio of FDI flows (inflows plus

outflows) with the Asian economies in the total FDI

flows with the world. FDI self-dependence on Asia

measures the share of intra-Asia FDI flows as a

percentage of the global FDI flows of all Asian

economies based on available data.

Table 5.1 shows the interdependence index of

1 In this Chapter, Asian economies include Australia and New Zealand.

FDI for the selected economies (reporters) on the

partners in 2020. For the bilateral cross-border

investment, Chinese mainland and Hong Kong

Special Administrative Region of China had the

highest dependence on each other. Chinese

mainland depended on Hong Kong Special

Administrative Region of China for 62.64 percent of its

total FDI flows (inflows plus outflows) while the

dependence of Hong Kong Special Administrative

Region of China on Chinese mainland was 54.87

percent, both higher than the previous year. Chinese

mainland and Hong Kong Special Administrative

Region of China were the top two economies in Asia

in terms of total FDI, and the FDI inflows and outflows

of Hong Kong Special Administrative Region of China

had rebounded sharply in 2020. Based on this, Asia’s

FDI self-dependence had increased accordingly.

Singapore maintained its role as an investment

channel among Asian economies, and Indonesia’s FDI

inter-dependence on Singapore was more than a

third in 2020. Singapore also had a significant impact

on direct investment in India, Chinese mainland and

the Republic of Korea.

China, Indonesia and the Republic of Korea

ranked top three countries with highest dependence

on Asia FDI flows and achieved higher level than those

in 2019. As China has significantly reduced its

investment in the rest of the world, its FDI

dependence on Asia has exceeded 90 percent. The

dependence of Hong Kong Special Administrative

Region of China on Asian FDI was close to 60 percent.

Japan and India showed the dependence indices of

Boao Forum for Asia Asian Economic Outlook and Integration Progress Annual Report 2022

116

more than 30 percent on Asian FDI. Australia has

reduced its financial dependence on Asia and in turn

increased its economic ties with the US.

China's influence on intra-Asian FDI has risen to

the first place, and the dependence of Asian direct

investment on Chinese mainland has increased

significantly from 9 percent in 2019 to 21 percent. It

was followed by Hong Kong Special Administrative

Region of China, with more than 20 percent. The rank

of ASEAN has also been elevated, and its proportion in

Asian direct investment has increased from 11.76

percent to 12.81 percent.

In 2020, the overall dependence of Asian direct

investment on the 15 signatories of RCEP increased by

20 percentage points to 49.2 percent, reflecting

investors' confidence and expectation on market

opportunities brought by the signing of the agreement

and its gradual implementation in member countries.

Asia’s self-dependence in FDI flows increased

from 47.83 percent in 2019, to 64.72 percent in 2020.

The increase in Asia’s self-dependence in FDI was due

to the sharp rise of the intra-Asia outward FDI. From

2019 to 2020, the interdependence index of the

outward FDI steeply rose from 44.78 percent to 86

percent (see Table 5.1). Asian economies have

brought COVID-19 under control more effectively and

quickly than Europe and the US, so the investment

environment of Asian economies has continued to

improve, making Asian markets more attractive to

capital.

Table 5.1 Interdependence of FDI (Inward plus Outward), Selected Asian

Economies, 2020 (%)

Of Reporter

(X) On

Partner(Y)

Partner

China Japan

Korea,

Republic

Hong

Kong

SAR,

China

India Australia

Indonesia

Singapore ASEAN

RCEP

(15)

CPTPP

(11) ASIA the US EU (27) ROW

China 0 7.02 2.99 62.64 0.10 1.76 1.13 10.35 15.17 27.18 21.48 93.28 4.81 8.40 -6.50

Japan 5.73 0 2.15 1.79 1.00 7.75 -0.78 6.93 11.43 27.29 17.78 31.01 21.56 9.48 37.96

Korea,

Republic

18.77 9.56 0 2.44 1.70 2.64 2.01 9.93 21.25 52.76 31.91 59.90 20.32 21.50 -1.72

Hong

Kong

SAR,

China

54.87 -0.70 -0.79 0 -0.37 -0.29 -0.06 5.82 7.00 60.27 15.09 59.69 1.07 4.33 34.91

India 0.20 10.12 0.36 -0.15 0 0.16 0.03 17.05 19.11 29.97 29.19 31.01 23.01 3.99 41.99

Australia

-4.14 19.09 1.02 2.99 -0.51 0 0.03 -0.99 3.18 16.12 26.09 17.76 21.45 11.41 49.38

Indonesia

13.12 -23.21 9.29 24.14 -0.03 -1.09 0 33.70 45.37 58.87 12.54 72.77 13.94 17.15 -3.87

Singapore

6.65 6.44 0.56 0.08 -0.63 0.43 -1.80 0 6.99 21.83 14.40 27.32 27.39 26.57 18.73

ASIA 21.27 6.70 2.26 20.21 0.48 2.58 1.02 10.58 12.81 49.20 27.24 64.72 13.79 19.66 1.83

Sources: Based on IMF Coordinated Direct Investment Survey (CDIS) database, and the data from the Statistical Bureaus of the individual economy.

Notes: Inter-dependence Index for FDI of X on Y (FDIIXY) = FDIXY/FDIWX, FDIXY = FDI inflow from Y to X and outflow from X to Y, FDIWX

= total global FDI inflow and outflow of economy X.

RCEP (15) refers to the 15 countries that have signed RCEP, namely ASEAN 10 countries, China, Japan, Korea, Australia, and New

Zealand.

CPTPP (11) refers to the 11 countries that have signed the CPTPP, namely Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico,

New Zealand, Peru, Singapore and Vietnam.

Since January 1, 2021, the members of European Union are Austria, Belgium, Bulgaria, Croatia, Cyprus, Czech, Denmark, Estonia,

Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, the Netherlands, Poland, Portugal,

Romania, Slovakia, Slovenia, Spain and Sweden.

FDI data of Singapore are that in 2019.

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Chapter 5 FDI Integration in Asia

117

5.1.2 Intra-Asia Dependence on the Inward

FDI remained resilient

The dependence on inward FDI measures the

extent of one economy’s dependence on another in

the FDI inflows and is calculated as the share of the

FDI inflows from a particular economy (the partner) in

the total FDI inflows from the world to the reporter.

Table 5.2 shows the interdependence index of

inward FDI for the selected Asian economies and US

in 2020. Hong Kong Special Administrative Region of

China remained the largest source of FDI inflows into

Chinese mainland.1 Reciprocally, Chinese mainland

was also the largest source of FDI inflows into Hong

Kong Special Administrative Region of China. Singapore

was the largest source of FDI inflows into Indonesia

and the Republic of Korea, and also the main source

of FDI inflows into Chinese mainland and India. Singapore

largely depended on investment from the US.

The FDI inflows into the US from China recorded

negative values in 2017, 2018 and 2020. However, in

2020, the FDI inflows into China from the US increased

significantly, and China's dependence on direct

investment from the US increased from about 2

percent in 2018 and to 7 percent in 2019.

In 2020, the largest source of foreign investment in

ASEAN is the US. The dependence of ASEAN on other

ASEAN countries’ investments increased in 2020 and the

intra-ASEAN FDI is still an important source of ASEAN’s

FDI inflows.

For the 15 members of RCEP, the intra-RCEP

dependence on the inward FDI rose to 38 percent, up

by 10 percentage points over 2019.

The inward FDI dependence on Asia for an

individual economy is calculated as the ratio of one

economy’s FDI inflows from Asia to the total FDI

inflows from the world. In 2020, Indonesia reached a

new record of 96.5 percent in their FDI inflows

dependence on Asia, as shown in Table 5.3. Chinese

mainland retained its over 80 percent dependence on

Asia in FDI inflows. ASEAN and RCEP rebounded in

their dependence on Asia in FDI inflows.

From 2016 to 2020, the intra-Asia FDI

1 The share of FDI from Hong Kong Special Administrative Region of China was 38.38 percent with the data from IMF CDIS. According to

the data from the Ministry of Commerce of China, that was 70 percent.

2 The share of OFDI from China to Asia was calculated with the data from IMF CDIS. According to 2020 Statistical Bulletin of China’s

Outward Foreign Direct Investment, with the statistics of actual outward direct investment, Asian economies (including Australia and New

Zealand) account for 74% of China’s total OFDI.

3 Ministry of Commerce, National Bureau of Statistics and State Administration of Foreign Exchange of China, 2020 Statistical Bulletin of

China’s Outward Foreign Direct Investment, September 2021.

4 UNCTAD. World Investment Report 2021, July 2021.

dependence index had remained over 50 percent for

five consecutive years. This shows that despite the

raging of COVID-19 and unresolved trade disputes

between China and the US, Asian economies have

remained resilient enough to keep regional production

chains intact.

5.1.3 Sharp Rebound of Asian Economies’

Dependence on the Outward FDI

The outward FDI (OFDI) dependence index

shows the importance of an economy as investment

destination. The index is calculated as the proportion

of one economy’s OFDI to a particular destination (its

partner) in its total global OFDI.

Table 5.4 shows the outward FDI dependence

index (OFDII) of some Asian economies to their

partners in 2020. Chinese mainland and India's

investment in Asia exceeded their global investment

(accounting for more than 100 percent), 2 mainly

because Chinese investors withdrew their direct

investment from other regions (negative) and

reduced the investment in the EU (from 7.68 percent

to 2.77 percent) while India has significantly

withdrawn its investment from the US.

In 2020, China's outward direct investment grew

drastically, with a flow of USD153.71 billion, ranking

first in the world for the first time, accounting for 20.2

percent.3 China's huge investment into Asian market

has led to a sharp rise in intra-Asia dependence on the

outward FDI. Meanwhile 80 percent of the FDI from

China has been achieved through Hong Kong Special

Administrative Region of China. FDI outflows from

Hong Kong Special Administrative Region of China

have doubled in 2020, mainly through multinational

enterprises (MNEs) listed in Hong Kong Special

Administrative Region of China reinvesting in their

subsidiaries in Chinese mainland and other parts of

Asia.4 Hong Kong Special Administrative Region of

China injected more than 75 percent of its OFDI into

the Asian market with more than 66 percent into

Chinese mainland market.

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118

Table 5.2 Interdependence of Inward FDI, Selected Asian Economies and the US, 2020 (%)

Of Reporter

(X) On

Partner (Y)

Partner

China Japan

Korea,

Republic

Hong

Kong

SAR,

China

India Australia India Singapore ASEAN RCEP

(15)

CPTPP

(11) ASIA the US EU

(27) ROW

China

0 16.49 6.78 38.38 0.03 0.77 0.05 16.78 18.27 42.52 35.94 82.05 7.05 16.21 -5.31

Japan

0.76 0 2.73 1.91 0.34 0.03 0.02 10.17 9.81 13.35 9.83 16.55 7.27 0.28 75.90

Korea,

Republic

-0.54 27.36 0 -7.62 0.97 -2.00 -0.10 16.56 18.17 45.08 48.87 48.88 -0.35 39.55 11.92

Hong

Kong

SAR,

China

39.32 -2.65 -0.95 0 0.02 -2.02 -0.13 8.28 6.19 39.90 12.59 38.84 1.37 5.62 54.17

India

0.21 10.52 0.42 -0.89 0 0.12 0.01 15.42 16.14 27.42 26.43 27.59 24.98 4.02 43.41

Australia

2.19 34.09 1.98 2.71 0.05 0 0.05 9.11 4.74 43.07 62.04 45.04 -6.65 -222.45 284.05

Indonesia

10.88 -52.01 20.83 52.09 -0.24 -3.37 0 38.72 92.47 96.54 -11.64 96.51 31.41 2.92 -30.84

Singapore

3.84 3.21 1.67 6.42 -1.30 1.50 -0.79 0 1.50 12.05 8.38 19.63 41.45 9.74 29.17

ASEAN

5.63 6.20 4.99 8.81 1.55 0.39 0.45 9.42 16.56 33.82 22.16 47.70 25.51 7.29 19.50

RCEP (15) 1.73 14.10 5.07 21.44 0.48 1.49 0.14 13.35 15.37 37.94 32.40 61.55 9.94 -12.90 41.41

CPTPP (11) 3.82 9.98 4.31 10.07 -0.32 2.67 -0.28 5.23 6.85 26.36 20.25 37.14 18.85 -45.63 89.65

ASIA 19.71 10.27 3.19 13.67 0.37 0.65 0.07 11.89 13.02 48.85 26.33 51.62 11.54 -5.07 41.90

the US

-0.88 7.24 4.23 0.71 -1.23 4.75 0.02 0.54 0.51 15.72 19.25 36.32 0 38.38 25.30

Sources: Based on IMF Coordinated Direct Investment Survey (CDIS) database and the data from the Statistical Bureaus of the individual economy.

Notes: Inter-dependence Index for FDI Inflows of X on Y (IFDIIXY) = IFDIXY/IFDIWX, IFDIXY = FDI inflow from economy Y to X, IFDIWX =

total global FDI inflow to economy X.

The negative value means the negative value of FDI inflow from economy Y to X, i.e., net outflow from economy X to Y.

Table 5.3 Self-Dependence of Inward FDI in Asia, Selected Asian Economies, 2016-2020 (%)

Economies 2008 2016 2017 2018 2019 2020

China 61.50 78.67 83.56 76.97 84.96 82.05

Japan 14.91 23.57 31.42 50.86 25.31 16.55

Korea,

Republic of 34.90 51.72 40.55 80.11 40.29 48.88

Hong Kong SAR,

China 43.56 34.49 39.74 36.02 64.20 38.84

India 18.11 44.66 35.28 16.26 40.95 27.59

Australia 22.77 25.28 41.80 29.04 57.63 45.04

Indonesia 61.31 72.87 72.73 79.32 77.78 96.51

Singapore 21.12 8.87 15.87 28.27 25.67 19.63

ASEAN -- 58.81 52.77 40.05 31.41 47.70

RCEP (15) -- 57.61 56.95 62.34 52.83 61.55

ASIA 38.28 51.78 54.65 52.02 52.93 51.62

Sources: Based on IMF Coordinated Direct Investment Survey (CDIS) database and the data from the Statistical Bureaus of the individual economy.

Notes:--= Not available.

Reporter

Chapter 5 FDI Integration in Asia

119

Hong Kong Special Administrative Region of

China remained the favorite destination for Asian

investors, receiving 30 percent of Asia’s outward

investment in 2020. Chinese mainland ranked the

second, accounting for 23.81 percent of Asia’s foreign

investment.

ASEAN has invested more than 60 percent of its

OFDI internally and more than 80 percent in Asian

market. RCEP members invested more than 90

percent of their OFDI in Asia. The 11 members of

CPTPP put 57 percent of their OFDI into Asian

economies.

Intra-Asia outward FDI dependence nearly

doubled from 44.78 percent in 2019 to 86.06 percent.

This is much higher than the 63.42 percent recorded

in 2018, showing a sharp fluctuation.

Table 5.4 Interdependence Index for Outward FDI, Selected Asian Economies, 2020 (%)

On Partner

(Y)

Of Reporter

(X)

Partner

China Japan

Korea,

Republic

Hong

Kong

SAR,

China

India Australia Indonesia Singapore ASEAN RCEP

(15)

CPTPP

(11) ASIA the US EU (27) ROW

China 0 0.19 0.25 80.15 0.16 2.47 1.90 5.70 12.94 16.10 11.03

101.40

3.19 2.77 -7.36

Japan 7.77 0 1.91 1.73 1.28 10.93 -1.11 5.59 12.10 33.03 21.06 36.96 27.44 13.27 22.33

Korea,

Republic

25.03 3.79 0 5.70 1.93 4.14 2.70 7.78 22.25 55.24 26.41 63.47 27.02 15.65 -6.14

Hong

Kong

SAR, China

66.53 0.75 -0.67 0 -0.66 1.02 0.00 3.98 7.61 75.55 16.97 75.33 0.84 3.36 20.47

India 0.09 -0.04 -1.28 18.56 0 1.27 0.71 58.25 94.35 94.54 98.98 117.62 -26.85 3.20 6.03

Australia -12.32 -0.31 -0.21 3.36 -1.24 0 0.00 -14.03 1.16 -18.71 -20.39 -17.51 57.76 313.70 -253.96

Indonesia 14.93 -0.08 0.02 1.69 0.15 0.74 0 29.67 7.53 28.61 31.97 53.69 -0.09 28.59 17.80

Singapore

11.92 12.50 -1.53 -11.84 0.64 -1.57 -3.70 0 17.32 40.21 25.73 41.76 0.95 58.18 -0.89

ASEAN 3.61 1.87 0.17 19.87 2.56 1.00 18.66 22.22 61.40 58.64 36.63 83.01 2.17 136.02 -121.21

RCEP (15)

5.62 0.90 1.17 51.10 1.16 9.08 4.20 10.78 14.23 33.65 29.15 93.15 29.39 71.85 -94.39

CPTPP (11)

4.45 18.30 6.79 8.69 2.69 -5.33 1.34 4.78 17.62 43.07 19.22 57.01 66.91 125.87 -149.78

ASIA

23.81 0.88 0.75 30.89 0.67 5.73 2.55 8.44 12.47 49.77 28.72 86.06 17.46 59.98 -63.50

the US

4.36 1.27 -1.87 5.49 -0.03 0.93 -0.25 4.15 -6.34 -1.45 15.33 14.88 0 27.17 57.95

Source: Based on IMF Coordinated Direct Investment Survey (CDIS) database and the data from the Statistical Bureaus of the individual economy.

Notes: Inter-dependence Index for Outward FDI of X on Y (OFDIIXY) = OFDIXY/OFDIWX, OFDIXY = FDI outflow from economy Y to X,

OFDIWX = total global FDI outflow from economy X.

-- = Not available.

The negative percentage means the negative value of FDI outflow from economy X to Y, i.e., net inflow from economy Y to X.

The outward FDI data of Singapore was those in 2019.

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Boao Forum for Asia Asian Economic Outlook and Integration Progress Annual Report 2022

120

5.2 Outlook of Cross-Border

Investment in Asia

Compared with the global average level in 2020,

cross-border investment in Asian economies recovered

faster. Global cross-border direct investment is expected

to see a rebound in 2021 and 2022.1 Better investment

environment in Asian economies, the entry into

force and gradual implementation of RCEP among

members, and the further promotion of investment

stabilization and facilitation measures will still be

conducive to the good performance of cross-border

investment in Asia.

Thanks to the rapid recovery and growth of China's

economy, the sharp increase in service industry

investment and the continuous promotion of investment

facilitation measures, the amount of foreign investment

absorbed by China in 2021 has increased by more

than 20 percent on the basis of 2020. Since the

introduction of the first version of the negative list of

foreign capital access in 2013, the list has been revised

six times by the end of 2021. The special management

measures have been reduced from 190 in the first version

to 31 in the 2021 national list. China has basically opened

up the manufacturing industry and are steadily and

continuously opening up the agricultural and service

industry, which has played a positive role in realizing the

continuous foreign investment growth in China. FDI in

the digital economy sectors and infrastructure-related

industries helped to mitigate the fall of FDI in other sectors

in the wake of the pandemic in ASEAN, which will lead to

increase of future productivity and attract more FDI.

The further strengthening of regional economic

connections in Asian economies is conducive to direct

investment growth in the region. The RCEP agreement

was signed in November 2020 and entered into force

in some member states in 2022. The role of RCEP in

promoting investment has been obvious, which is

reflected in the rapid rise of RCEP's internal investment

dependence and its attraction to Asian capitals. With the

implementation of the agreement, the internal and

external investments RCEP could attract will further

increase.

1 UNCTAD. Global Investment Trend Monitor, Issue 40, January 2022.

Chapter 6 Financial Cohesion and Development in Asia

121

Chapter 6

FinancialCohesionand

DevelopmentinAsia



Financial cohesion is an important part of Asian

economic integration. Stepping out of the shadow of

the Asian financial crisis (AFC) in late 1990s, Asian

economies have actively integrated into the global

supply and production chain, enjoyed rapid

economic growth and made remarkable progress in

regional integration. Finance is crucial to economic

development. Drawing lessons from the AFC, Asian

economies have, on the whole, adopted sound

macroeconomic policies including macro-

prudential management, strengthened financial

institutions and opening up their financial markets. As

a strong magnet for global financial capital, Asia

contributed significantly to the sound operation of

the international financial and monetary system.

Since the outbreak of COVID-19, the world and

Asian economies have been hit hard. New variants of

the Coronavirus continue to emerge and industrial

and supply chains are hampered. Looking ahead to

2022, global inflation is hiking, commodity prices are

soaring, and economic recovery becomes uneven

and hard to sustain. The International Monetary Fund

forecasted a 4.4% growth of the world economy in

2022. The major advanced economies begin to TAPER

and normalize their monetary policies, posing risks of

stagflation, debt sustainability, financial market

instability for Asia and many developing economies.

The financial cohesion in Asia will help Asian

economies tackle with international challenges and

promote regional and global financial stability.

This chapter mainly analyzes the degree of

cohesion and development of Asian financial markets

from three aspects: the openness of Asian financial

markets, currency cooperation and the vigorous

international financial centers in Asia.

6.1 Financial Market Openness

in Asia

This section uses the cross-border portfolio

investment data from the IMF Coordinated Portfolio

Investment Survey (CPIS) to analyze the degree of

openness and development of Asian financial

markets. The global portfolio investment decreased in

2018, and rebounded in 2019, with the total amount

reaching USD66.7 trillion. In 2020, despite the heavy

blow of COVID-19 to the global economy, the global

portfolio investment registered USD76.32 trillion, up

14.4% year-on-year increase (see Figure 6.1). At the

end of 2020, the total portfolio investment outflow

from Asian economies had reached USD11.55 trillion,

an increase of 15.8%. This figure is broadly the same as

that in 2019, and slightly higher than the global

average (see Figure 6.2). At the same year, Asia’s

portfolio investment inflow recorded USD8.9 trillion

and grew by 18.40%, 4 percentage points higher than

that in 2019, indicating that Asian financial markets

maintained its attractiveness during the epidemic.

Within Asia, Japan ranked first in terms of

absolute value of portfolio investment outflow. From

2017 to 2020, Japan’s outstanding portfolio investment

Boao Forum for Asia Asian Economic Outlook and Integration Progress Annual Report 2022

122

outflow reached USD4,106.257 billion, USD4,068.775

billion, USD4,536.099 billion and USD5,073.668 billion

respectively. In 2020, Japan’s outflow growth reached

USD537.587 billion, up 11.85%. China has seen its

portfolio investment outflow growing at a rate of

39.3%, not only higher than Asia’s average (15.8%), but

also more than doubled the global average (14.4%)

(see Figure 6.2). For Asia as a whole, portfolio

investment inflow kept growing in the past two years,

with a rate exceeding the global average (see Figure

6.3). Within Asia, Japan, China and the Republic of

Korea are the major economies absorbing portfolio

investment inflows. In 2020, Japan absorbed USD

472.53 billion portfolio inflows, while China attracted

USD433.22 billion. Portfolio inflows both to China and

Japan have enjoyed rapid growth. In 2019 and 2020,

that to China grew by 21.8% and 30.2%, while that to

Japan increased by 11.5% and 17.1%. (see Figure 6.3).

From the perspective of a longer time span, since

2010, except for in 2011 and 2015, China has enjoyed

0ver 15% yearly high growth of portfolio investment

inflow. In general, from 2010 to 2020, the portfolio

investment inflows to Asian economies grew quicker

than that of the world for most part of the time,

showing strength of Asian economies and financial

markets and their long-term attraction to capital (see

Figure 6.4).

Figure 6.1 Capital Outflow Under Global Portfolios,

2017-2020

Source: CPIS, complied by the author, several countries and regions with incomplete data were deleted.

Chapter 6 Financial Cohesion and Development in Asia

123

Figure 6.2 Capital Inflow Under Global Portfolios, 2017-2020

Source: CPIS, complied by the author, several countries and regions with incomplete data were deleted.

Figure 6.3 Capital Inflow Under Global Portfolios, 2009-2020

Source: CPIS, complied by the author, several countries and regions with incomplete data were deleted. To maintain comparability, countries

in the region are aligned with the capital outflow chart.

Note: Asia, China, Japan and the Republic of Korea (right axis).

Boao Forum for Asia Asian Economic Outlook and Integration Progress Annual Report 2022

124

Figure 6.4 Growth Rate (Year-on-Year) of Capital Inflow Under

Global Portfolios, 2010-2020

Source: CPIS, complied by the author, several countries and regions with incomplete data were deleted. To maintain comparability, countries

in the region are aligned with the capital outflow chart.

6.2 Progress in Asian

Monetary Cooperation

A major focus of Asian monetary cooperation is

to fortify global, regional and bilateral financial safety

nets. Since the global financial crisis, global policymakers

have strengthened the global financial safety net. The

IMF has greatly expanded its capacity to provide

liquidity support to economies in balance of payments

crisis by issuing special drawing rights and enlarging

the general borrowing arrangements. In September

2021, the IMF made a "historic decision" to carry out a

new round of special drawing rights allocation with a

scale of USD650 billion. 1 Emerging market and

developing economies, including developing Asia,

received USD275 billion in Special Drawing Right

1 https://baijiahao.baidu.com/s?id=1707126021795846929&wfr=spider&for=pc.

(SDR), enhancing their ability of self-bailout and

mutual support and further strengthening the global

financial safety net.

The construction of financial safety net in Asia

began after the AFC. In 1998, the 10 ASEAN countries

and China, Japan and Korea established the "10+3"

financial cooperation mechanism and established the

Chiang Mai Initiative (CMI) in 2000. All countries

decided to jointly provide liquidity assistance to

countries with balance of payments problems. In

2007, “10+3” agreed to "merge" multiple bilateral

agreements into a single reserve pool to better play

the rescue role in times of crisis. In 2009, Hong Kong

Special Administrative Region of China became a new

contributor. In 2020, the Chiang Mai Initiative

multilateralization agreement came into force with a

Chapter 6 Financial Cohesion and Development in Asia

125

total size of USD120 billion, serving as a key regional

financial safety net. In 2012, member economies

continued to deepen the multilateral monetary

agreement, doubled the scale of investment and

increased the proportion of decoupling from the loan

conditions of the IMF. In April 2021, the special revised

version of the CMIM agreement signed by the finance

ministers and central bank governors of “10 + 3” and

the Head of the Hong Kong Monetary Authority came

into force. The revisions included that members can

provide local currency-denominated loans on a voluntary

and demand-driven basis. The local currency funding

provisions will promote the use of Asian currencies. In

addition, "10 + 3" also strengthened the economic

assessment and early warning of regional economies.

In terms of bilateral local currency swaps, since

2020, many Asian centered banks and monetary

authorities have further promoted bilateral local

currency swap, settlement and other monetary

cooperation. By the end of 2020, the People’s Bank of

China (PBC) had signed bilateral local currency swap

agreements with central banks or monetary

authorities in 40 countries and regions, with a total

amount of more than RMB3.99 trillion. The scale of the

bilateral currency swap agreement renewed with the

Bank of Korea expanded to USD59 billion, the largest

among the currency swap agreements signed by the

PBC. Japan attaches great importance to establishing

currency swap arrangements with many Asian

countries, including Indonesia, the Philippines,

Singapore and other ASEAN countries, and adds a

liquidity crisis prevention mechanism to some

currency swap agreements. In 2021, the Bank of Japan

and the PBC renewed the bilateral currency swap

agreement, with a scale of RMB200 billion/3,400

billion yen. India actively promotes currency swap

arrangements under the framework of the South

Asian Association for Regional Cooperation. The latest

currency swap arrangement period is 2019-2022, and

the Reserve Bank of India will provide a swap

arrangement line of USD2 billion. In 2021,

Bangladesh and Sri Lanka launched a currency

swap agreement, and the Central Bank of Bangladesh

will provide Sri Lanka with a loan of USD250 million.

The currency swap arrangements of South Asian

countries help to enhance their ability to cope

with the decline of foreign exchange reserves

and the risk of exchange rate fluctuations during

the epidemic.

The use of local currency settlement is the

cornerstone of practical monetary cooperation in

Asia. The use of RMB in China’s foreign trade and

investment settlement continued to grow. In 2020,

the RMB settlement volume of China’s trade in goods

exceeded RMB4 trillion. Indonesia has actively

promoted the expansion of the Local Currency

Settlement (LCS) framework signed with the central

banks of Thailand, Malaysia and the Philippines. In

August and September 2021, Bank of Indonesia

successively signed LCS agreements with the Ministry

of finance of Japan and the PBC, identifying their

commercial banks as Appointed Cross Currency

Dealer (ACCD). As the G20 chair in 2022, Indonesia

actively promotes the use of local currency settlement

in bilateral trade and investment. At the meeting of

G20 central bank governors and finance ministers in

last February, Indonesia proposed an annual target of

increasing local currency settlement by 10%.

In 2021, the proportion of Asian currencies in

global payment and settlement continued to increase

(see Figure 6.5). According to SWIFT data, as of

December 2021, the share of RMB in international

payments rose to 2.70% from 2.14% in November.

In the same month, the share of RMB in international

payments rose to the fourth. The Japanese yen

ranked fifth, the Hong Kong dollar ranked eighth

and the Singapore dollar ranked ninth, accounting

for 2.58%, 1.17% and 0.95% respectively. Thai baht

and Malaysia’s ringgit are also among the list of Top

20 payment currencies in the world.

Boao Forum for Asia Asian Economic Outlook and Integration Progress Annual Report 2022

126

Figure 6.5 Share of International Payments in Major Global

Currencies, December 2021

Source: SWIFT.

6.3 Development and

Innovation of Asian

International Financial Centers

6.3.1 Asian Cities Occupy an Important

Position in the Global Financial Center Cities

According to the Global Financial Centers Index

(GFCI) in 2021, Hong Kong Special Administrative

Region of China, Singapore, Shanghai, Beijing and

Tokyo ranked third, fourth, sixth, eighth and ninth

among the top ten financial center cities in the world.

Asian cities hold more than half of the seats.

Despite of the significant impact of COVID-19 on

the flows of personnel and capital in of Asian financial

center, the economic growth of Singapore and Hong

Kong Special Administrative Region of China in 2021

reached 7.2% and 6.4% respectively. GDP of Beijing

and Shanghai reached USD624.2 billion and USD669.9

billion respectively, and that of Shenzhen reached

USD475.3 billion (see Figure 6.6). Tokyo is still the

largest urban economy in Asia. Before the epidemic in

2019, its metropolitan area GDP was close to USD1

trillion, surpassing all other financial central cities in

Asia.

Chapter 6 Financial Cohesion and Development in Asia

127

Figure 6.6 GDP of Asian Financial Center Cities

Sources: The GDP data for Beijing, Shanghai and Shenzhen come from their respective city statistics bureaus, and the RMB exchange rate

against the US dollar comes from an annual average. Data for Singapore and Hong Kong Special Administrative Region of China

come from the World Bank. Nominal GDP for Singapore and Hong Kong Special Administrative Region of China in 2021 has not

yet been released. The figures come from the aggregate calculation of nominal GDP of 2020, real growth and annual inflation.

The added value of Beijing’s financial industry

reached RMB760.37 billion in 2021, a year-on-year

increase of 4.5%, accounting for 18.9% of its GDP.

Comparing the two urban economies of Hong Kong

Special Administrative Region of China and

Singapore, it can be seen that the share of the added

value of HKSAR’s financial industry in its GDP has

stabilized at about 20% in recent two or three years,

while the share trended upward in Singapore from

9.7% to 14.3% in the past decade (see Figure 6.7). The

figure for Tokyo is relatively low, basically stable at

about 9%. In addition to the financial industry, retail

trade, manufacturing, information technology and

real estate are also the pillar industries of Tokyo (see

Figure 6.8).

Important progress has been made in the

construction of international financial centers in West

and Central Asia. Abu Dhabi International Financial

Center attaches importance to the leading role of

financial technology. In May 2021, the Abu Dhabi

Global Market Digital Lab (ADGM Digital Lab) Platform

was officially launched. It was jointly built by China’s

OneConnect Financial Technology and Abu Dhabi

International Financial Center, providing a new

platform for many types of financial institutions to

exchange modes and technologies. Kazakhstan’s

Astana International Financial Center, established in

2018, has established a special green finance center to

support the issuance of green bonds, and plans to

become a regional RMB settlement center.

Boao Forum for Asia Asian Economic Outlook and Integration Progress Annual Report 2022

128

Figure 6.7 Evolution of the Proportion of Added Value of Financial

Industry to GDP in Singapore, Hong Kong SAR, China and Tokyo

Sources: The data of Hong Kong Special Administrative Region of China come from Statista, Singapore data from the Ministry of Trade and

Industry, and Tokyo data from the Tokyo Metropolitan Statistics Office.

Figure 6.8 The Share of Various Industries in Tokyo’s GDP, 2019

Source: the Tokyo Metropolitan Statistics Office.

6.3.2 Asian Stock Markets Are Enjoying

Steady Development

Asian stock markets are also developing steadily.

China’s Shanghai Stock Exchange, Shenzhen Stock

Exchange, Hong Kong Stock Exchange, Tokyo Stock

Exchange, Korea Stock Exchange and Singapore Stock

Exchange, and India’s National Stock Exchange are all

important trading venues serving home and abroad.

Over the past decade, Asia’s major exchanges have

experienced rapid growth in market capitalization

(see Figure 6.9). The market capitalization of listed

companies is an important index to measure the

importance and influence of exchanges. By the end of

2021, the market capitalization of Shanghai Stock

Exchange was RMB51,969.834 billion (about

USD8,057.3 billion), that of Shenzhen Stock Exchange

was RMB39,638.98 billion (about USD6,145.6 billion),

and that of Hong Kong Stock Exchange was 42,272.77

billion Hong Kong dollars (about USD5,438.9 billion)

(see Figure 6.9). The market capitalization of the first

and second parts of the Tokyo stock exchange market

Chapter 6 Financial Cohesion and Development in Asia

129

and the gem is 753 trillion yen. If the two parts of

Japan Association of Securities Dealers Automated

Quotation (JASDAQ) and Tokyo Pro market are

included, the market capitalization of the Tokyo Stock

Exchange reaches 933 trillion yen (about USD8.2

trillion) (see Figure 6.10). The total trading volume of

the Tokyo Stock Exchange in Japan significantly

exceeded that of the exchanges in several other

economies (the Republic of Korea, India, Singapore,

Hong Kong Special Administrative Region of China).

Ernst & Young’s statistics show that the year 2021 saw

the most active IPO market and China is the most

active among all. Six of the world’s top ten IPOs were

Chinese enterprises, and the Shanghai Stock

Exchange and Hong Kong Stock Exchange accounted

for half of the top ten IPOs. In October 2021, Paytm, a

well-known Unicorn company in India, landed on the

Indian Stock Exchange and raised USD2.2 billion,

becoming the largest IPO in the Indian market in 2021.

In August 2021, Bukalapak, an e-commerce platform,

was listed in Indonesia, raising USD1.5 billion, and

making the largest IPO in Indonesia. In December

2021, Singapore real estate investment trust digital

core REIT was listed on the main board of the

Singapore Stock Exchange, raising USD600 million,

the largest IPO scale in the Singapore stock market in

the whole year. The attraction of Asian exchanges to

high-quality enterprises has continued unabated.

Global stock exchanges are highly competitive,

and all parties continue to push through the old and

bring forth the new. In order to better attract the

attention of potential listed companies, especially

large technology companies, unicorns and investors

around the world, Asian stock exchanges actively

adapt to the new situation and embrace new

technologies. In the whole year of 2021, China’s SSE

STAR Market, the Sci-Tech Innovation Board, added

160 listed companies, including 19 companies in the

semiconductor industry chain, and raised funds of

RMB200.7 billion. By the end of 2021, the market

capitalization of these listed companies had reached

RMB2.13 trillion. The total market capitalization of the

SSE STAR Market reached RMB5.95 trillion, an increase

of 70.33% over the end of 2020. In September 2021,

Beijing Stock Exchange (BSE) was registered and

established. This is China’s first corporate-owned stock

exchange. The establishment of the BSE is a

continuation of comprehensively deepening the

reform of the New Third Board. It is positioned to serve

innovative small and medium-sized enterprises and

opens a new chapter in the multi-level layout of

China’s capital market. By the end of 2021, the total

number of listed companies on BSE had reached 82,

with a total market capitalization of RMB272.275

billion.

As the regulatory environment of the US stock

market tightens, the adverse impact of Sino-US trade

friction on the listing environment of Chinese concept

stocks in the US is emerging, and more overseas-listed

Chinese firms began to return to the Hong Kong SAR

of China market. According to Wind data, in 2021, a

total of 8 overseas-listed Chinese firms were listed in

Hong Kong Special Administrative Region of China for

the second time, including Ctrip group, Baidu group,

bilibili and other well-known companies. Of course,

the return of these stocks may impose certain liquidity

and give pressure on stocks prices over Hong Kong

Stock Exchange in the short term, bringing pressure

to the stock price. But in the long run, high-quality oversea-

listed Chinese stocks are expected to be favored by long-

term investors home and abroad. Hong Kong Stock

Exchange has also accelerated the pace of

institutional innovation. In December 2021, it

announced the consultation summary on special

purpose acquisition companies and the revision

opinions on the Securities Listing Rules of the Hong Kong

Exchange Limited, which will open a new channel for

the listing of special purpose acquisition companies.

This has adapted to the new situation of the global

capital market and enhanced the attraction of the

Hong Kong Stock Exchange to global unicorn enterprises.

Boao Forum for Asia Asian Economic Outlook and Integration Progress Annual Report 2022

130

Figure 6.9 The Evolution of Stock Market Capitalization of Chinese Mainland and

Hong Kong SAR, China

Source: CEIC.

Notes: Chinese mainland (left axis); Hong Kong Special Administrative Region of China (right axis).

Figure 6.10 Stock Market Capitalization of Tokyo Stock Exchange, Including First,

Second and the GEM

Source: CEIC.

Note: Growth Enterprise Market (GEM).

The stock trading volume is a measurement of

the activeness of the stock market. The stock trading

volume in Chinese mainland exceeds that of other

economies, showing a relatively prosperous trading

situation, followed by Japan and the Republic of Korea

(see Figure 6.11). It can be seen that the prosperity and

economic strength of the economy are the

underlying forces for stock trading. This index of Hong

Kong Special Administrative Region of China accounts

for a higher GDP proportion, followed by the Republic

of Korea, China and Japan (see Figure 6.12). Of course,

this is related to the key feature of Hong Kong Special

Administrative Region of China as an urban economy

and an international financial center. Measured by the

domestic share turnover ratio index, China, the

Republic of Korea and Japan have most active stock

markets in Asia (see Figure 6.13).

Chapter 6 Financial Cohesion and Development in Asia

131

Figure 6.11 Evolution of Total Annual Stock Trading Volume of

Asian Financial Center Stock Exchanges

Source: the World Bank.

Figure 6.12 Evolution of Total Annual Value of Stock Trading volume as a

Percentage of GDP on Asian Financial Center Stock Exchanges

Source: the World Bank.

Boao Forum for Asia Asian Economic Outlook and Integration Progress Annual Report 2022

132

Figure 6.13 Annual Turnover Ratio of Domestic Shares Traded on the

Asian Financial Center Stock Exchanges

Source: the World Bank. .

6.3.3 International Financial Centers

Accelerate the Development of Fintech

The analysis of the financial technology industry,

users and ecological development of more than 80

cities in the world in the 2021 Global Financial

Technology Center City Report shows that the top nine

financial technology centers in the first tier are Beijing,

San Francisco, New York, Shanghai, Shenzhen,

London, Hangzhou, Singapore and Chicago. The

report also shows that financial technology

experience in developing countries and Asia gained

high ranking and all of the top 10 cities in this regard

are located in Asia. Hangzhou ranked first in the global

consumer experience for three consecutive years, and

Shenzhen second with more than 90% of financial

technology users for the first time. The Southeast

Asian market also performed well, and the experience

of Fintech consumers in Singapore, Kuala Lumpur and

other cities continued to improve.

The forces of the market, technology, and rules

and regulations have played important roles in the

development of Fintech firms in Asia’s international

financial centers. In February 2022, the PBC and other

four departments of government issued the

Development Plan for Financial Standardization

During the 14th Five-Year Plan Period, steadily

promoted the construction of financial technology

standards, and strengthened the development and

effective application of standards such as cloud

computing, block chain, big data, artificial intelligence,

biometrics and the Internet of things. The Hong Kong

Monetary Authority announced the “financial

technology 2025” strategy in June 2021, strengthening

cross-border financial technology cooperation and

promoting the implementation of new cross-border

payment technologies. Singapore has attracted strong

investment in Fintech. In 2021, Singapore’s financial

technology industry recorded a five-year high of 191

transactions, and the total transaction volume

increased by 59% to USD3.94 billion from USD2.48

billion in 2020, through venture capital (VC) and

private equity (PE) investment and mergers and

acquisitions (M&A). The Singapore Monetary Authority

also launched the regulatory sandbox PLUS, relaxed

the application threshold, improved the subsidy

application process, and better helped Fintech

institutions obtain funds, regulatory support and

industry exchanges.

References Financial Cohesion and Development in Asia

133

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Preparation Notes and Acknowledgements Financial Cohesion and Development in Asia

135

Preparation Notes and

Acknowledgements

This annual Report is co-edited by Professor Zhang Yuyan, Director of the Institute of World

Economics and Politics, Chinese Academy of Social Sciences, Professor Lin Guijun, former Vice President

of the University of International Business and Economics, and Cao Li, Vice President of the Boao Forum

for Asia Academy. Vice President Cao Li is also responsible for the overall organization and coordination

of the Report.

The Report is divided into two parts, Part 1 is titled "Asian Economic Outlook" and is edited by

Professor Zhang Yuyan. In terms of division of the writing, the Overview was written by Xu Xiujun,

Chapter 1 was written by Feng Weijiang (1.1 and 1.2), Xiong Aizong (1.3 and 1.4) and Jia Zhongzheng

(1.5), and Chapter 2 was written by Xu Xiujun (2.1 and 2.2), Jia Zhongzheng (2.3) and Tu Xinquan, Li Siqi

and Du Yingxin (2.4). Part 1 was finally proofread by Zhang Yuyan and Xu Xiujun. Part 2 is on "Asian

Economic Integration Progress", co-edited by Professor Lin Guijun and Vice President Cao Li, and the

writing team included Cao Li (Overview), Pei Jiansuo and Zhang Meng (3.1), Deng Shizhuan (3.2), Wang

Fei (4.1), GaoKailin (4.2), DengHaowen (4.3), Wang Chunrui (5), WangQianzheng (6). From the

formulation to the conclusion of the Report, all members of the writing team worked diligently and

cooperatively to ensure the smooth delivery of the Report with outstanding professionalism and

enthusiasm.

Mr. Li Baodong, the Secretary-General of Boao Forum for Asia, provided comprehensive guidance

and assistance during the conceptualization and writing of the Report. Four experts, including Yao

Wang, former Executive Director of Boao Forum for Asia Academy and President of the Western

Returned Scholars Association,Wang Yuzhu, Researcher of the Asia-Pacific and Global Strategy Institute

of the Chinese Academy of Social Sciences, Secretary General of the Asia Pacific Society of China, Sang

Baichuan, Director of the Institute of International Economics of the University of International Business

and Economics, and Shen Jianguang, Chief Economist of the JD Group made professional comments

on the Report. We would like to express our sincere gratitude to the Secretary General of the Forum

and the review experts for their contributions to the Report!

We thank the team of the University of International Business and Economics Press for their

professional editing and publishing job. We also thank Liu Yan, Peng Liyang, Xue Chen, Xie Zhiyu, Zhou

Yifan at Boao Forum for Asia Academy for their support in the editing process.

Despite full efforts, the Report is liable to mistakes or omissions due to our limited knowledge. The

authors take responsibility for the contents.

Boao Forum for Asia Asian Economic Outlook and Integration Progress Annual Report 2022

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