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China is taking the initiative to promote the deepening of Asian financial cooperation

The financial cooperation among Asian countries is mainly crisis-driven. Dating back to July 1997, the sudden eruption of the financial crisis was a sharp shock. Then, the total growth rate of ASEAN+3 (10 Association of Southeast Asian Nations members plus China, Japan, and the Republic of Korea) dropped to 0 in 1998, and real consumption and real investment decreased by 3 percent and 17 percent, respectively.

Scholars and policymakers intensively discussed the causes of the crisis. As Asian countries were vulnerable because of excessive borrowing of short-term foreign debt, fixed exchange rate system and underdeveloped financial institutions, the short-term massive capital outflow largely deteriorated the economic situation. However, the crisis also exposed the difficulty of receiving timely and efficient support from international financial institutions. Even though the International Monetary Fund was willing to provide loan assistance, it also put forward strict structural reform requirements. The ideologically-driven demand for further liberalization made Asian economies suffer a loss of economic sovereignty, which motivated them to build some novel, independent institutions to buttress solidarity on their own.

China has played an indispensable role in this process. On the initiative of China, the first ASEAN+3 Finance Ministers' Meeting was held in the Philippines in April 1999, marking the initial formation of the financial cooperation mechanism. In the autumn of 1999, representatives of the finance ministries of China, Japan and the ROK held a meeting in Beijing to discuss how to draw lessons from the Asian financial crisis. The subsequent signing of the Chiang Mai Initiative on May 4,2000 was a milestone development. The initiative emphasized four aspects: monitoring capital flows, monitoring the regional economy, establishing a bilateral currency swap network, and training technocrats. Following the blueprint, the Chiang Mai Initiative Multilateralization (CMIM) agreement came into force in 2010 and was further expanded from $120 to $240 billion in 2012. China has a committed financing share of $76.8 billion, the largest donor along with Japan.

After the crisis, the cooperation network was further deepened with the continuous commitment of member countries. First, The ASEAN+3 Macroeconomic Research Office, or AMRO, was established in Singapore in 2011 and officially upgraded to an international organization in 2016, with the aim of carrying out regional economic monitoring and providing support to the CMIM.Second, the Asian Bond Markets Initiative was launched in December 2002, with the aim of reducing Asian countries' dependence on foreign debt. Under this initiative, China and Thailand jointly led a working group to support regional green and sustainable infrastructure bond issuance. Third, a Credit Guarantee and Investment Facility was funded in 2010 to enhance the credit rating of enterprises, and promote the development of the regional local currency bond market. Overall, these efforts indicate consistent endeavors to strengthen regional financial solidarity.

Nevertheless, Asian financial cooperation also faces challenges that test its resilience and capacity. In the short term, the shadow of the COVID-19 pandemic and the Russia-Ukraine conflict have resulted in a worldwide supply chain crisis and soaring inflation. Consequently, the Asian Development Bank lowered its 2022 economic growth forecast for developing economies in the Asia-Pacific region to 4.6 percent from 5.2 percent. The national bankruptcy of Sri Lanka is a striking incident, and analysts also worry about whether the debt crisis will spread to other regional countries confronting similar burdens.

In the long-term, the biggest challenge for Asian financial cooperation is how to gradually develop leadership. In addition to contributing material resources and utilizing diplomatic statecraft, leadership is critical for formulating consensus and defending customized policies to cope with Asian countries' idiosyncratic situations. Without a certain degree of professionalism in resolving complex financial issues, emerging markets have little choice but to accept the leadership of the IMF and the OECD.

Notably, on the initiative of China, the ASEAN+3 mechanism has made timely preparations to overcome these challenges. When China was the co-chair of AMRO in 2016, it promoted the redefinition of the AMRO strategy to further clarify its purpose, vision and core functions. Taking advantage of the 10th anniversary of AMRO's establishment last year, China highlighted the importance of the region's economic development and integration, and proposed to create a more influential platform for financial policy exchange. In responding to the worsening world economy, the CMIM recently launched the 13th rescue exercise to test the decision-making process for decoupling part of the preventive loan rescue in the case of a worsening pandemic.

To develop analytical leadership, China proposed the Strategic Direction of ASEAN Plus Three (APT) Financial Cooperation in 2019 to facilitate the formulation of the regional knowledge center. According to the proposal, the knowledge center aims to better mobilize intellectual resources in the region and improve the quality of knowledge services. Specifically, it calls for building the regional financial think tank network, developing more research tools and databases, and providing a policy exchange platform for member economies. These initiatives are promising, and their long-term impacts should not be underestimated.

Overall, the Asian financial network is being continuously deepened, and in this process, China has played an indispensable role in uniting regional countries and buttressing cooperation. Confronting today's increasingly fragmented global economy, how to strengthen the cooperation mechanism within the region is of profound significance.

The author is an assistant researcher of the Institute of World Economics and Politics at the Chinese Academy of Social Sciences. The author contributed this article to China Watch, a think tank powered by China Daily.

The views do not necessarily reflect those of China Daily.

Contact the editor at editor@chinawatch.cn