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Asia Economies Should Accelerate the Promotion of Connectivity

Time:2013-09-29 10:52:33    Views:1969041    Origin:Boao Forum for Asia

By LONG Guoqiang

Director, PRC State Council Development Research Centre 

 

As a major force driving cooperation across the Asian region, connectivity should enable coordinated planning, provide a focus on key issues, and support regional and bilateral development. It must also drive innovative investment and financing mechanisms, broaden financing channels, and accelerate the unification of technical standards. 

 

Connectivity provides a basis for mutual connection and collaboration between nations in the region. In the broad sense, connectivity includes connectivity between entities, governments and in the civil arena. Connectivity between entities includes transport, communications and other infrastructure; connectivity between governments includes rules facilitating trade and investment, while connectivity in the civil arena includes education, travel and other interpersonal interchanges. In its narrow sense, connectivity involves the fields of transport, communications and energy. Connectivity is discussed in this article in its narrow sense.

The strategic significance of accelerating Asian regional connectivity

It should first be iterated that connectivity is a major factor driving cooperation across the Asian region.Regional economic cooperation can be seen in three categories. The first is institutional cooperation, which is probably best represented by regional free trade agreements. Currently, Asia’s free trade areas include ASEAN, while China, Japan and South Korea have signed their own separate “10+1” free trade agreements with ASEAN. In addition, negotiations are already underway for a China-Japan-South Korea FTA and a Regional Comprehensive Economic Partnership (RCEP). The surge in institutional cooperation represented by free trade areas is the most visible means of regional economic cooperation. The second category is financial cooperation. The 1997 Asian financial crisis forced the nations of Asia to recognize the need for regional financial cooperation, symbolized by the Chiang Mai Agreement, where a regional financial cooperation framework whose prime purpose is to provide safeguards against financial risk is currently being formed. The third is the projects from the entity cooperation. After the Second World War, European regional cooperation initially got underway by means of a coal and steel community, and eventually evolved into the European Union. Europe’s Airbus is a model of a successful regional cooperation project. In Asia, the UNDP advocated sub-regional cooperation along the Tyumen River as early as the 1990s, but due to the area’s complex geopolitical relations, this has not generated significant results. The Greater Mekong sub-regional cooperation project, which has focused on infrastructure construction and connectivity, is making steady progress. In 2010, ASEAN established an ASEAN ICT Master Plan. At the 2011 summit of East Asian leaders, China announced its willingness, together with ASEAN, Japan and South Korea, to support the masterplan, and jointly work to promote the development of the region’s road, rail, air and water transport infrastructure. Due to the differing levels of development among Asia’s nations, infrastructure in numerous countries in the region is strikingly underdeveloped, and it is hard to unleash their development potential. For this reason, infrastructure development and connectivity are a major focus in regional economic cooperation.

Secondly, the promotion of connectivity is beneficial to the promotion of Asian regional economic cooperation. Infrastructure connectivity is not only a focus of regional economic cooperation, but more importantly, it also lays the foundations for further regional economic cooperation, and effectively promotes regional economic cooperation. The region’s different countries have their respective advantages, and furthering economic cooperation can give full play to their own respective advantages, and accelerate economic growth. However, the infrastructure of many under-developed economies in the Asian region is very backward, and this seriously constricts economic growth. The degree of infrastructure connectivity between countries is low, and communications are difficult. For example, some countries are rich in mineral resources, but their lack of infrastructure makes this difficult to develop, extract, and to transport to markets in other countries. Some countries have a wealth of tourist destinations, but these are constrained by infrastructure issues, making them hard for foreign tourists to reach, and only attainable to a minority of “explorers”. Two main barriers hinder regional economic cooperation, namely institutional barriers and physical barriers. Inter-governmental agreements such as free trade areas focus on the elimination of institutional barriers, whereas infrastructure connectivity focuses on eliminating physical barriers. In the end, one is not possible without the other, and these must proceed hand in hand. For this reason, only by accelerating infrastructure connectivity among the region’s nations can regional economic cooperation be effectively promoted.

Thirdly, the promotion of connectivity facilitates Asia’s response to the new challenges it faces following the international financial crisis. The economies of Asia have one common feature: they have all adopted an export-oriented development strategy, and rely on the external markets of the world’s developed economies. Prior to the international financial crisis, the prosperity of the world’s developed economies provided opportunities for Asia. Following the outbreak of the international financial crisis, the developed economies were marked by sluggish growth, and insufficient demand. Asia’s economies registered relatively better growth, and furthering intraregional cooperation is beneficial to taking mutual advantage of market opportunities. For example, following the outbreak of the crisis, the China-ASEAN free trade area has begun to play a role, and import-export trade between China and the ASEAN nations has maintained rapid growth, and each country, which previously relied on external developed markets, have now turned to the regional domestic market, a highly significant development. Promotion of Asian intraregional infrastructure connectivity will help promote regional economic cooperation, and will also help the respective countries of the region as they face the grim situation following the international financial crisis. 

 

Criteria and opportunities for accelerating the promotion

of Asian intra-regional connectivity

Promoting Asia intra-regional connectivity will require huge amounts of investment, coupled with huge differences in the technological and economic basis of each of the nations of the region. A lack of standard technical standards highlights people’s concern that developing connectivity will be no small task. Nevertheless, promoting connectivity offers a number of beneficial criteria and opportunities.

Firstly, the political foundations of Asian intra-regional connectivity. In the face of a wave of global regional economic cooperation, the nations of Asia have clearly understood the importance of strengthening economic cooperation in the region, and in recent years intra-regional free trade agreements have grown rapidly, with new initiatives constantly emerging and the pace of new negotiations accelerating. The division of labor within the Asian region continues to intensify, and the proportion of intra-regional trade to total trade is rapidly increasing, presenting new challenges to connectivity. Faced with external regional trade agreements and the challenges of the international financial crisis, the nations of Asia have added an extra sense of urgency to the need for further cooperation, which has in turn provided new impetus to the promotion of Asian regional economic cooperation and connectivity. For example, China not only announced its willingness, together with ASEAN, Japan and South Korea, to support the ASEAN Connectivity Master Plan, and jointly work to promote the development of the region’s road, rail, air and water transport infrastructure, but it also proposed establishing a China-ASEAN Connectivity Cooperation Council, to work towards achieving the connectivity objectives for land transport corridors between China and the ASEAN nations in question as rapidly as possible, and promote the smooth transit of travelers and goods. Furthermore, as part of the framework of the Shanghai Cooperation Organization, each member state will accelerate inter-state connectivity so as to reach a common standard. All of the major nations of the Asian region have achieved consensus over the promotion of regional economic cooperation and connectivity, and have laid the solid political foundations for accelerating the promotion of connectivity.

Secondly, the capacity foundations for Asian intra-regional connectivity. Many of Asia’s economies hold abundant foreign currency reserves, in particular East Asia’s export-oriented economies and the Middle East’s oil-exporting nations. China and Japan currently lead the world in terms of foreign currency reserves. However, Asian nations’ massive foreign currency reserves are mainly invested in the financial markets of developing nations, where they are used to buy government bonds and other financial products in these nations. The existence of these massive foreign currency reserves provides the financial foundations for the construction of intra-regional infrastructure and connectivity. At the same time, in a number of East Asian economies such as China and South Korea, companies also possess powerful infrastructure construction capacity, and these are some of the world’s most competitive companies in the global engineering and construction market. These companies are in a position to provide high-quality, low-cost services in the construction of intra-regional infrastructure, providing a major capacity foundation for accelerating Asia intra-regional connectivity.

Thirdly, experience in Asia’s intra-regional connectivity. The nations of the Asian region have all developed to different degrees, they have different political systems, and promoting connectivity requires the exploration of effective cooperation modes. For many years, the Asian region has actively explored issues relating to connectivity, has learned lessons from its failures, as well as its successes—forming valuable resources for promoting connectivity. The Greater Mekong sub-regional cooperation program focuses on infrastructure connectivity, and has achieved sustainable progress and a wealth of experience in terms of international shipping, rail, road, air, information network and power network connectivity. 

 

Suggestions for accelerating Asian intra-regional connectivity

Firstly, planning should be coordinated, a focus provided on key issues, and sustainable progress should be promoted. Asian intra-regional connectivity covers a wide range of issues, affecting many countries, and overall promotion is relatively difficult. First of all, the principle of applying small investment amounts to yield rapid results should be used to prioritize and select key projects and key regions, taking the easier ones first, and then promoting these effectively. For example, connectivity projects where investment amounts are low and results will rapidly be achieved should preferably be selected; for river ways, waterway policies and port construction should be appropriately implemented, so as to develop international transport or open up trans-modal logistics connections. Secondly, full use must be made of existing facilities. For example, China and Russia both have a relatively comprehensive electricity grid in their Far Eastern areas, and only minimal investment is required to achieve electricity grid connectivity. Thirdly, minimum standards and maximum coverage must be ensured. Connectivity should have a realistic basis, focusing on “connection” rather than on an excessive pursuit of “speed”, meaning that the emphasis need not be on pursuing high-standard infrastructure such as motorways, high-speed rail services, expansive airport facilities or major port installations.

Secondly, innovative investment financing mechanisms must be created, and financing channels broadened. Asian connectivity requires massive amounts of funds, and the social value of the infrastructure itself will have a certain impact on a project’s benefits. For this reason, innovative investment financing mechanisms must be created, and financing channels broadened. First, an inter-governmental investment fund must be established, into which major nations invest financial funds, thus establishing a connectivity fund earmarked for use in the construction and interconnection of Asian intra-regional infrastructure. Secondly, a regional bond market must be established, to issue sovereign bonds for use in connectivity. Third, inter-government preferential loans must be increased. Fourth, guidance must be provided for the entry of private investment, thus increasing the creative innovation of PPP, BOT and other modes.

Thirdly, regional and bilateral development should be supported. Regional cooperation and bilateral cooperation each have their own advantages. In terms of planning, regional cooperation offers obvious advantages, but the cost of coordination is higher; in terms of implementation and promotion, bilateral cooperation thus offers definite advantages. For this reason, Asian connectivity must not only be promoted at the regional level, but given full play, and bilateral cooperation and regional cooperation must not be played off against each other. At the bilateral level, besides the loan and fund approaches, more flexible means must be negotiated for funding resources, such as in the construction of a Sino-Russian oil pipeline, where Russia has undertaken to provide China with oil for a period of 25 years in return for Chinese concessional loans.

Finally, the promotion of unified technical standards must be accelerated. Connectivity not only involves the interconnection of hardware, but also requires the unification of technical standards and connectivity procedures; otherwise this will incur a long-term increase in operating costs. If we take the railways as an example, some nations in the Asian region use broad gauge, such as the nations of Central Asia; others use the international standard gauge, such as China; still others use the narrow gauge, such as the nations of South Asia. Connecting railways with different gauges requires switchovers, which affects efficiency as well as cost. Furthermore, the facilitation of connectivity is extremely important. For example, 2009 saw the launch of an international passenger train service between Nanning and Hanoi, a journey of 13 hours, 5 of which are taken up by border entry and exit formalities. However, a flight takes a mere 45 minutes, and a drive only 5 hours. It is thus clear that if the “software” does not work properly, it will be difficult to obtain the efficiency benefits of connected infrastructure, and economic efficiency will also be significantly impacted.

 

In summary, faced with a new situation in which regional cooperation is aggressively expanding, accelerating the promotion of Asian intra-regional connectivity is of great strategic significance, and its role in regional cooperation is also becoming increasingly important. The nations of the region must seize the opportunities which present themselves, work together, create opportunities for innovation, ensure sustainable progress, and strive to achieve early results.

From Boao Review