1050x300-As-nCS-Report-Asia Finance 2020- Framing a New Asian Financial Architecture

Report: Asia Finance 2020: Framing a New Asian Financial Architecture

Author(s): Andrew Sheng, Ng Chow Soon

Date: Dec 4, 2013

Theme(s): Finance & Macroeconomics, Trade & Investment

Publications: Books & Reports

What is the current state of Asia's financial sector and what steps should policymakers take in order to strengthen the system to support future growth?

Download the full report here

Asia is getting richer, not only absolutely but relatively. Over the last decade, Asia increased its share of global GDP from 24 per cent to 31 per cent. Its vast population is increasingly urban and increasingly middle class. With both Europe and the US struggling to bounce back from the deep recession triggered by the financial crisis, the world is again looking towards Asia as the engine of growth. However, Asia is also at a crossroads. It needs to shift from its current “old industrial” export-driven model towards a new economic model – one that is focused on domestic consumption and is more socially just and environmentally sustainable.

The Asian financial sector will need to facilitate this transformation in the real economy. Alas, it is currently ill-suited to playing this role. The Asian financial sector is dominated by short- term bank lending; it suffers from shallow capital markets and a paucity of “real money” long-term investors, such as insurers and pension funds; and it lacks the financial data, credit expertise and incentives required to lend to small firms or innovative start-ups.

In short, the Asian financial system is adapted to the “old industrial” real economy it has been serving. For Asian economies to modernize, the financial system must modernize too.

This report describes the shortcomings of the current system and makes recommendations for Asian policy makers. Among other things, they should co-ordinate their policies to create an efficient and regionally integrated financial sector, increase transparency to reduce information asymmetries and facilitate the transition towards an increasingly mobile world by ensuring safety and efficiency of local payment systems. We also argue for Asian policy makers to create financing back-stop facilities as well as tax incentives to further encourage equity and other long-term funding.

If this modernization agenda is followed, we believe the 3 growth pillars (SMEs, infrastructure and trade) alone can create an incremental GDP uplift of more than 0.5 per cent on an annualised basis and increase the financial sector’s market capitalization by as much as $2 TN.

A joint publication by the Fung Global Institute (FGI) and Oliver Wyman.

 

The views expressed in this report are those of the authors and do not necessarily reflect those of the Fung Global Institute. The authors are solely responsible for any errors or omissions.