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Cover Stories Series 2013> Friendship First> Archive
UPDATED: September 16, 2013 NO. 38 SEPTEMBER 19, 2013
The 'Diamond' Decade
China and ASEAN's ambitious plans to bolster their economic ties could turn the Asia-Pacific into the world's largest free trade area
By Zhou Xiaoyan

LIKING THE GOODS: Two women check out the offerings at the Vietnamese pavilion at the 10th China-ASEAN Expo on September 5 (ZHANG AILIN)

More cooperation in the area of finance was called for during the expo, because the consolidation of regional financial ties is widely believed to act as a buffer against instability in the region. The Bank of China enabled the cash conversion of the Indonesian rupiah with the yuan across its branches in Guangxi. This is the sixth ASEAN member with a currency that can realize cash convertibility in China, following Singapore, Thailand, the Philippines, Viet Nam and Malaysia. Also during the expo, Shanghai Pudong Development Bank (SPDB) inaugurated its offshore business innovation center in Nanning to explore best practices in cross-border yuan settlements. The Nanning center, catering to ASEAN markets, is SPDB's second offshore business innovation center, after the one in Xiamen, a major city in Fujian Province.

Those two moves answer the latest call made by Premier Li for more cross-border trade and investment settlements in local currencies to lessen dependence on the U.S. dollar. Li also called for implementing bilateral and regional local-currency swap agreements to safeguard financial and economic stability in the region.

China-ASEAN financial cooperation has witnessed profound achievements, and the overall scale of Chiang Mai Initiative Multilateralization agreement, a regional currency swap arrangement that seeks to manage short-term liquidity problems, has expanded to $240 billion. China has so far signed four swap agreements with ASEAN members. The volume of bilateral swap agreements with local banks has reached 1.4 trillion yuan ($228 billion), while yuan-denominated cross-border settlements between China and ASEAN reached 1.12 trillion yuan ($183.1 billion) by June 2013, said Yi Gang, Vice Governor of the People's Bank of China, the country's central bank, and Administrator of the State Administration of Foreign Exchange. Yi warned that the potential end to quantitative easing from the United States may result in massive capital outflows and is likely to cause currencies to inflate and stock markets to plunge in emerging markets. "In this backdrop, it's extremely important to have a regional financial safety net to cushion the impact of global financial turbulence," said Yi.

Yi's concerns were echoed by Chea Chanto, Governor of the National Bank of Cambodia. "China and ASEAN have made tremendous progress in financial collaboration, but that's not enough," said Chanto. "I think we should establish a regional financial stability institution to monitor financial risks and warn us of those risks."

"Only by financial collaboration can we realize regional financial stability," he added. "No country can do that by itself."

Email us at: zhouxiaoyan@bjreview.com

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