Transcript Assessing Systemic Issues: Regional Initiatives and Way

Regional Financial Co-operation:
Initiation and Way Forward
Stephen Yan Leung CHEUNG
City University of Hong Kong
Contents
• Update on Asian economies
• Regional Co-operations
• Way forward
The 1997-8 revealed the weaknesses
• Corporate sector
• Financial institutions
• Exchange rate management
Economic Growth Indicators (I)
Region
• Impressive growth rate since the crisis
• Major set back in 2003 Q2
• Recovered strongly
• Example: HK grew at 3.35 at 2003 and is
expected to grow at 7.5%
Table 2: Economic Growth of some selected
Asia Economies during 1996-2003
1996
1997
1998
1999
2000
2001
2002
2003
China
9.6
8.8
7.8
7.1
8
7.5
8
9.1
Hong Kong, China
4.3
5.1
-5
3.4
10.2
0.46
2.27
3.32
Indonesia
7.64
4.7
-13.13
0.79
4.92
3.44
3.69
4.12
Japan
3.43
1.83
-1.13
0.1
2.8
0.41
0.32
2.7
7
4.65
-6.85
9.49
8.49
3.84
6.97
3.07
10
7.32
-7.36
6.14
8.5
0.3
4.19
5.2
Philippines
5.85
5.19
-0.58
3.4
5.97
2.96
4.43
4.52
Singapore
8.15
8.51
-0.86
6.42
9.41
-2.37
3.29
1.09
5.9
-1.37
-10.51
4.45
4.76
2.14
5.41
6.74
Korea, Rep.
Malaysia
Thailand
Economic Growth Indicators (II)
• Asian region is expected to grow at a
faster pace
• Funds needed to sustain high-tech
economic growth
• What reforms needed to further enhance
our regional capital makrets
Table 3:Overview of the World Economic Outlook Projections
(Annual percent change unless otherwise noted)
2003
Current Projections
2004
2005
World Output
3.9
4.6
4.4
Advanced economies
2.1
3.5
3.1
United States
3.1
4.6
3.9
Euro Area
0.4
1.7
2.3
Japan
2.7
3.4
1.9
United Kingdom
2.3
3.5
2.5
Developing Asia
7.8
7.4
7.0
China
9.1
8.5
8.0
India
7.4
6.8
6.0
ASEAN-41
5.0
5.4
5.4
Table 4: Market Capitalization of Listed Companies
(as a % of GDP) in Selected Asia Economies, 1997-2003
1997
1998
1999
2000
2001
2002
2003
3.64
2.34
1.88
2.52
2.43
2.5
3.12
22.93
24.41
33.39
53.76
44.57
36.57
48.32
238
207.81
379.17
377
310.82
286.7
..
India
31.24
25.37
41.39
32.36
22.99
25.68
46.6
Indonesia
13.49
23.15
45.79
17.84
16.28
17.34
26.24
Japan
51.28
63.24
101.73
66.27
53.93
53.24
..
8.92
35.07
88.96
33.6
48.14
45.54
54.45
Malaysia
93.44
136.61
183.2
129.77
135.26
130.65
163.22
New Zealand
45.81
45.86
49.6
36.5
34.6
37.26
..
Pakistan
17.54
8.67
11.89
10.8
8.41
17.22
24.09
Philippines
38.13
54.16
63.16
67.97
29.57
50.03
29.25
Russian Federation
31.61
7.6
36.85
14.98
24.85
35.88
53.24
Singapore
111.45
115.33
243.8
167.07
138.25
115.43
..
Sri Lanka
13.92
10.76
10.09
6.55
8.45
10.14
14.64
Thailand
15.57
31.2
47.74
24.03
31.42
36.33
84.44
32.3
16.83
61.47
34.98
32.84
18.49
28.73
Bangladesh
China
Hong Kong, China
Korea, Rep.
Turkey
Box 1(I)
• At the end of 2003, 1,307 companies were
listed in Hong Kong.
• Total funds raised rose 91.6% from the
preceding year
• The market capitalization rose 54%
• The daily turnover was HK$10.4 billion
Box 1(II)
• Mainland companies accounted for 43.4%
of market turnover
• 27.4% of the new listings
• 25% of total equity funds raised
• More important role
• Bank financing plays an important role in
ten region
• Bond market is underdeveloped
Asian Crisis
• Currency mismatching
• Maturity mismatching
A high –quality bond market with sufficient
market depth could have long-term
economic development and reduce the
probability of future crisis
Table 5: Financing Structure of Asian Economies and
Selected Countries in 1995 and 2003
1995
Country/
Economy
Bank
Loans
Stock
Market
2003
Bond
Market
Bank
Loans
Stock
Market
Bond
Market
As % of total financing
Hong Kong
39.6
55.6
4.8
23.3
69.7
7.0
Indonesia
60.2
38.0
1.7
42.9
51.3
5.8
Korea
44.6
29.4
26.1
45.7
23.9
30.4
Malaysia
22.4
65.3
12.4
29.7
47.9
22.4
Philippines
30.1
64.9
4.9
47.9
47.3
4.7
Singapore
31.5
60.0
8.4
32.5
47.5
20.0
Taiwan
62.9
31.2
5.9
42.5
43.1
14.4
Thailand
50.8
43.9
5.3
38.3
40.2
21.5
Total
45.0
44.5
10.6
36.8
44.6
18.5
United States
21.1
30.4
48.5
19.5
33.2
47.2
Japan
43.4
27.8
28.8
33.7
21.9
44.4
Box 2
The Hong Kong government has just completed its
first securitized bond issue. The HK$6 billion worth
of bonds issued are backed by the net revenue from
five tunnels and a bridge owned by the government.
The issues were over-subscribed; almost half are
now owned by the general public with an
oversubscription rate of 2.13 times and the rest by
the institutional investors with an oversubscription
rate of 3.1 times. In order to enhance the bond’s
liquidity and promote retail participation, the issues
were listed on the Hong Kong Exchange on 10 May
2004 with the board lot size of HK$50,000, which is
around US$6,410.
II. Financial Market Reforms
• Monetary and exchange rate policy
• Bond market
• Equity market
• Risk management of banks
Monetary and Exchange Rate Policy
• Asian Monetary Fund
• Chiang Mai Initiatives - currency swap lines
arrangement between ASEAN+3
– arrangement between ASEAN+3
– swap network, regional surveillance, monitoring of
capital flows, and training of personnel
Observation: the amount of money is small
relative to the reserves and the liquidity of the
markets
ASEAN’S surveillance system to Encourage
the Coordination of Macroeconomic and
Financial Policies
• Early warning system???
• The nature of crisis is changing
• Hard to use historical pattern to predict
future crisis
Observation: whether governments in the
region can ‘really’ share sensitive
economic information.
Bond Market Development (I)
• EMAP – ABF1 and ABF2
• ASEA+3 – New securitized debt
instruments, issuance of debt by
international financial institutions, regional
credit guarantees and enhancement
facilities, local and regional credit-rating
agencies
• APEC – Development of Securitization
and Credit Guarantee Markets
Bond Market Development (II)
Observation:
Efforts in overlapping areas.
Interdepartmental coordination needed
between Central Bank, Ministry of Finance
and Securities Commission for local
market.
Equity Market Development
• Institute of Directors of East Asia network
was formed
• The guideline of good corporate
governance practices was endorsed by
APEC ministers 2001
• Future projects
– scorecard on corporate governance
– training initiative
AMU (I)
• Monetary and exchange rate stability- Asian
Monetary Union
Pros:
• Boost up trade volume
• Insulated from speculative attacks
• Collective discipline on monetary stability, open
capital markets, and fiscal prudence
• Eliminate competitive depreciation
• Enlarged, unified financial markets
AMU (II)
Cons:
• Loss of monetary autonomy for national
interests
• Loss of autonomy to operate capital
control
AMU (III)
• AMU may not too far and may not be the
only solution
– strengthening the CMI arrangement
– developing further the bond markets in the
region
– extending free trade agreements
– cooperating in the pursuit of exchange rate
stability
Capital Market Development
•
•
•
•
•
•
•
Legal and regulatory framework
Information transparency
Market infrastructure
Corporate governance
Credit agencies
Investor education
Cooperation and alliance of stock
exchange
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