Accelerated transformation of Asia For more than five decades Asia has sustained high economic growth. More important, however, is the significant economic transformation that has occurred during this recent decade, in response to the changing domestic and international environment. Asia now and Asia previously is therefore significantly different. Asia today contributes about one third of world output and 28% of world trade. Asia’s progress and development has lifted millions out of poverty, creating extensive employment and improving living conditions with better education and healthcare opportunities. The economic transformation has essentially resulted in more diversified sources of growth for Asia. From being export-led, domestic demand has now become an increasingly important source of growth. This is also reinforced by the shift from the public sector to the private sector as the main driver of growth. While Asia is highly diverse, a common feature prevailing is the tremendous economic flexibility of the Asian economies. Institutional development, the large skilled workforce, the shift to greater market orientation and the general macroeconomic stability have allowed resources to continuously shift to new areas of comparative advantage and for the Asian economies to remain competitive. Being highly diverse, Asia has also been able to leverage on the complementarities that exist in the different economies. This has generated an expansion in intra-regional trade, intra-regional investment activities and an increase in financial linkages between the economies in Asia. The Asian financial crisis was a defining moment for Asia.

Private investment activity is also beginning to pick up after a period of over capacity due to the excesses prior to the Asian financial crisis. There are also plans for massive investment in infrastructure development to sustain the economic competitiveness of the region. The Asian Development Bank estimates that Asia will require about USD 8 trillion of infrastructure investment in the next decade. Most important is that Asia has the internal capacity from its high savings to finance these infrastructure requirements. The stronger domestic demand in Asia is also well supported by the strengthened financial systems following the restructuring of the banking sector, the development of the capital markets and the strengthening of the regulatory and supervisory systems in the post-Asian financial crisis period. The reforms implemented also included the progressive deregulation and the move to greater market orientation and increased liberalisation. Today, Asia’s capital markets are significantly deeper and more liquid. The bond market in emerging East Asia has increased by more than seven-fold since 1996, with a current value of USD 4.2 trillion dollars. Emerging East Asia accounts for 7.2% of the total worldwide bond market at end-2009 compared to 2.5% in 1996. Asian banks have stronger fundamentals with improved risk management and governance practices, with capitalisation well above the regulatory requirements and with non-performing loans maintained at historical lows. Riskbased approaches to supervision have also been widely adopted across Asia.