But to set the context on what I am going to say, given that financial markets cannot be discussed separately from the real economies, I want to begin with a few observations on the current macro and finance trends in the region. In the context of key macro and finance trends in the region, I think at least four developments stand out as the current defining themes. First is the region’s much improved economic resilience and fundamentals. These qualities now offer the region a prospect of continued strong long-term growth and potentials. At the same time, the region’s financial prowess – in terms of high saving rates, current account surpluses, and strong international reserves – has continued to improve, and thereby enhances the region’s financial influence in the global economy. Next is the increased interdependency. With the growth in economic activities, we are also seeing more economic interdependency within the region, especially in trade, and especially in trade between China and the rest of the region. Intra-regional trade is now the largest component of total trade for most East Asian economies. And its momentum has been an important driver of the region’s trade and economic growth. And third is the growth of finance, flows, and market transactions, propelled by the increase in trade and investment between the region and the rest of the world and also by trade within the region.
I also have a number of specific remarks and views to make on the aspects of East Asian financial markets to be discussed in the next sessions. But for the benefit of time, I think I should leave them for later opportunity. For now, let me close by saying a little bit about the role of policy. Government policies, in my view, have played an important role in the current development of East Asian financial markets. The key policy, of course, has been the implementation of financial sector reform which has resulted in a much improved financial system, especially the banking sector. Policies have been directed at developing the region’s capital markets too, especially the bond market. Policy coordination has also been strengthened to increase regional financial integration and to develop a policy coordination framework that can help the region deal better with the likelihood of a crisis. I am referring here to the CMI or the Chiang Mai Initiative and its surveillance process. But while policies have been important, the process of financial market development in East Asia has essentially been left to the market, in the sense that the process is basically a market-driven one. But on account of what is perceived to be a slow progress, question arises whether policy should do more. My view is that the process should continue to be market-driven and not policy-driven. But there are areas that government policies can do more, especially on issues that involve efforts on a region-wide basis.