toshiro muto : dynamism and diversity of asia – a central banker's view remarks by mr toshiro muto, deputy governor of the bank of japan, at " emerging opportunities in the global economy " the 29th annual joint meeting of the japan - us southeast association and southeast us - japan association, tokyo, 17 october 2005. * i. * * introduction good morning, ladies and gentlemen. it is a great pleasure to join you at this special gathering. asia is undergoing tremendous changes. links between the countries in this region are getting closer. two big countries, china and india, are growing on a global platform. these changes are taking place not only in economic terms but also in the political and diplomatic arenas. against this background, changes in asian dynamics are beginning to reshape the contours of the us - asia relationship. with these things in mind, i will address four facets of today's asia : booming economies, rising regional cooperation, looming challenges, and evolving relations with the us. ii. booming economy following the economic crisis in 1997 - 98, the economies in south - east asia have made a strong recovery. indeed, countries in this region have exhibited impressive resilience in restoring their economic vitality. when the world economy slowed in the wake of the bursting of the it bubble in 2002 - 03, asia's solid growth helped avert the global recession. china's economic expansion is particularly remarkable as it has sustained an average growth of 8 - 9 percent per annum for the past decade. if you take a closer look at the current economic dynamism in asia, you will not fail to see a stark difference from the past economic booms. in the past, trade in this area was simple. industrial countries like japan and korea imported raw materials from their asian neighbors to export final products to the us and europe. in contrast, trade patterns within asia are now much richer on the basis of the sophisticated vertical division of production processes. countries are specializing in the optimal parts of the supply chain on the basis of their resource endowment and comparative advantage. this process is being propelled by foreign direct investment ( fdi ) coming from both within and outside the region. for example, japan exports intermediate and capital goods to china and other asian countries, and these countries assemble what they import from japan in order to make final products for the global markets. consequently, the proportion of intra - regional trade in asia has climbed to 54 percent, which lies

, thereby providing a boost to economic globalization. in other words, regional trade arrangements are not aimed at creating an exclusionary economic bloc. to the contrary, such trade networks can make the asian economies more open and prosperous. on the financial front, cooperation among asian countries is gathering pace. its prime motivation is to avert a financial crisis like the one we went through in 1997 - 98. efforts in this field are producing tangible results around two pillars : 1 ) the establishment of bilateral swap arrangements, and 2 ) the development of regional bond markets. as some of you might know, there is a collegial group of central banks in this region. this group, called emeap, an acronym for the executive meeting of east asia pacific central banks, has eleven members. from its inception in 1991, emeap comprises nine east - asian central banks plus two central banks from australia and new zealand. emeap is very active in three key areas, namely, financial markets, banking supervision, and settlement / payment systems. to give you a picture of what emeap is doing for bond market development, allow me to digress a little bit. emeap has engaged itself in the project known as abf, or asian bond fund. in this fund, eleven emeap central banks jointly set up their foreign reserves to place investment funds composed of asian sovereign bonds. the purpose of abf is to stimulate turnovers in the bond market in this region. in june 2003, the central banks launched abf1, the first stage of the abf project, to invest in dollardenominated sovereign bonds issued by asian countries. in may 2005, emeap went a step further by announcing the start of abf2. abf2 invests in sovereign bonds issued in asian local currencies. although led by the emeap central banks, abf is not an " asia - only " project. actually, western financial services companies take part in this project as a fund manager and custodian. from what i have said, you can sense the pragmatic spirit of asian regional cooperation. in fact, pragmatism is the hallmark of joint initiatives in this region. another point is that these cooperative endeavors are largely market - driven. put differently, asian cooperation is an " autonomous " process. it is in sharp contrast to the eu integration where member nations have agreed to transfer some of their sovereignty to brussels, frankfurt, and other european cities to operate