Financial integration in the Asia-Pacific: Fact and fiction
Finsia’s latest research paper with the Australian Centre for Financial Studies explores the depth of financial integration in the Asia-Pacific region. The report reveals that there is much more to do to understand the evolution of financial relationships and connectedness in the region.
Why is understanding financial integration so important?
The financial ecosystem is the grease that allows the wheels of commerce to turn, and for households and firms to manage their daily affairs while building capacity and wealth.
Australia’s financial system is well-connected in the global market, and at 9% it makes the largest contribution of all sectors to total output.
Despite this, the United States, United Kingdom and New Zealand still make up more than 70% of Australia’s trade in financial services rather than emerging Asian economies.
As emerging economies in the Asia-Pacific region receive an increasing share of global cross-border banking flows, intra-regional linkages will deepen. It is essential to understand Australia’s financial integration in the region or risk falling behind.
Barriers to integrating financial services
Asia is not Asia. Asia is a collection of many individual economies, each with their own regulatory regimes, each with their own legal framework, each with their own culture, each with their own language.
OECD data reveals that barriers to trade in commercial banking and insurance are high in key Asian markets including China, Indonesia and India.
Further investigation required
Data for Australia’s goods and merchandise trade is very thorough, and one can even find two-way trade for different types of goods. In stark contrast, data for trade in financial services and investments is nowhere near this level of sophistication.
Australia lacks the level of understanding for financial services trade that we have with merchandise trade.
For example, services provided Australian foreign affiliates who have established a commercial presence overseas (e.g. subsidiary branch or joint venture) are not captured in the official data. The report estimates that financial services for foreign affiliate sales to be around $55.4 billion in 2013–14, exceeding the entire cross-border services exports figure reported for that year.
Collecting the right data will deepen our understanding of how financial relationships are evolving between Asian economies, so Australian businesses can make the most of new export opportunities.