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ASEAN Plus Three cooperation is driving force for East Asia

By Zhong Sheng (People's Daily)

17:12, August 16, 2011

Edited and Translated by Ye Xin, People's Daily Online

East Asian cooperation, mainly among the ASEAN Plus Three countries — the10 Southeast Asian nations plus China, Japan and South Korea — is in a crucial period.

On one hand, the global economy, which has been dragged down by the U.S. and European debt crises, will rely more on the driving force from East Asia, and more and more economies may expect to benefit from cooperation with East Asia. On the other hand, the continued development of ASEAN Plus Three cooperation is directly linked to the development of the East Asian driving force and the enhancement of Asia's international status.

Development is the most prominent feature of the East Asian driving force. The reason for the fruitful ASEAN Plus Three cooperation is that ASEAN nations have developed rapidly and enhanced their ability to withstand risks in recent years. Furthermore, ASEAN and the three countries of China, Japan and South Korea have formed a basic coordination mechanism in free trade, currency cooperation, rice reserves and other fields.

The ASEAN's leading status will be further consolidated if the ASEAN Plus Three cooperation obtains a more solid foundation and the free trade regions established separately by ASEAN as well as China, Japan and South Korea can be integrated. The ASEAN Plus Three cooperation mechanism will promote regional investments, the integration of free trade regions and ASEAN's cooperation with other economies.

The U.S. and Europe's promotion of their cooperation with ASEAN are not only out of their realistic and long-term strategic considerations but also a type of recognition of the rise in the ASEAN's strategic position.

However, China should keep alert that Western media agencies have recently continued to play up the resource-grabbing intentions of China's cooperation with the ASEAN to drive a wedge between China and the ASEAN using their traditional alliance with some ASEAN countries and attempting to build alliances with other ASEAN members under the cover of human rights and political system issues. Their moves simply aim to undermine cooperation within East Asia. They will not gain more benefits in East Asia unless they make more practical input there. They have not and will not gain any benefit there through only smooth talk.

The cooperation in East Asia is not a zero sum game, which in today's ASEAN is clearer and more obvious than ever before. The ASEAN member countries need to accelerate their development rather than make forced choices after being stuck between major powers.

ASEAN's development is faced with serious challenges in terms of internal integration. As a major member of the ASEAN Plus Three countries, China is increasing its input to help ASEAN member countries accelerate their infrastructure construction and build up interconnected networks. China takes a positive view of the participation of economies besides ASEAN Plus Three countries in the process of cooperation in East Asia and believes that the ASEAN can move in the right direction of regional cooperation; work with China, Japan and South Korea to deepen the cooperation; preserve the interests of the East Asian countries, and properly maintain a healthy cooperative situation created by the Asian countries through years of efforts.

Many divergences of views and frictions do exist between ASEAN members and the three countries of China, Japan and Korea, and we do not want to evade it. However, if we let the divergences and frictions hinder the course of cooperation, not only the divergences and frictions will deepen but also all of these countries will be defeated one by one more easily by various tsunamis such as the financial crisis. Only if the cooperation has been strengthened can these countries' capacities to withstand risks be built and more space can be saved for alleviating and solving the divergences and frictions.

The deepening regional cooperation has turned into a major feature of the global structure moving towards multi-polarization. Although the regional cooperation of the East Asia started later, its momentum is strong. The regional cooperation of the East Asia has unfolded in the regions with most dynamic economic development, and participants in the cooperation include both traditional and emerging powers.

Seen from these two aspects, it could be found that the positive significance of promoting East Asian cooperation is far beyond the economic realm. The ASEAN Plus Three cooperation should be expanded but currently it is still the most important thing to strengthen it. The ASEAN Plus Three cooperation has already had a relatively good foundation and could be promoted in a relatively short period of time. It accords with the overall requirement of the East Asian cooperation.


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PD User at 2011-08-17114.160.71.*
1. For a long time now Malaysians have been questioning why we must use the United States’ Dollar for international trade, why we cannot use a dinar or any other currency. But Malaysians are not supposed to know anything about money, about finance. So nobody listens.2. Now it is the United Nations which is saying that its member countries should agree on the creation of a global reserve bank to issue a new currency and to monitor the national exchange rates of its members, according to Bloomberg reporting on the Geneva-based UN Conference on Trade and Development.3. The report said that China, Brazil and Russia this year called for a replacement of the Dollar as the main reserve currency after the financial crisis sparked by the collapse of the mortgage market led to the worst global recession since World War II.4. The United States as the whole world knows is existing on unlimited loans by the rest of the world. US Dollar bonds are bought by every country in the belief that they would represent their reserves. Such bonds seem to be available all the time, unlike bonds issued by other countries which are for specific amounts.5. If the US Dollar is not used for trade payments and loans, then there would be no demand for it. Obviously this would cause the US Dollar to be devalued. When it is devalued all the countries holding Dollar bonds would lose their reserves very substantially. So the countries with huge Dollar reserves would resist any move that would reduce the value of their reserves.6. The US itself would resist as devaluation of the US Dollar would make it a very poor country. It cannot then remain the imperial power that it is now.7. If the US Dollar is not to be used for trade and reserves, what currency should replace it? The Euro and the Yen seems suitable but it is doubtful if either Europe or Japan would want their currencies to be used the way we use the Dollar now.8. The suggestion that a new currency be issued by a new global reserve bank is very attractive. Some people would like to use gold dinars.9. The actual name of the currency is not important but backing by gold is important. If the new currency is used only for trade settlements (just as the US Dollar is now used) the proposal would be quite feasible.10. Whatever, the world needs to discuss this proposal seriously. As the report says, a new currency would help to protect the emerging market from “confidence game” of financial speculation. And Malaysia falls into the category of emerging markets.11. Maybe Malaysia might embolden itself to champion this proposal. Maybe!
PD User at 2011-08-17114.160.71.*
1. When the currencies of East Asia were being devalued in 1997-98 the International Monetary Fund and the World Bank offered to help with loans. However the offer was conditional.2. The countries must open their economies to foreign capital including the buying up of their businesses by foreigners.3. The effect of currency devaluation is to reduce the value of the countries’ business in terms of foreign (US Dollar) currency. In addition the financial crisis would make the businesses less profitable or unprofitable so that their market value in local currency would be depressed.4. For example if the local business is worth RM100 million in local currency, equivalent to US40 million at 2.5 Ringgit to the US Dollar, a devaluation to five Ringgit to the US Dollar would bring down the value of the business to US20 million.5. If because of the crisis the value of the business in the local currency falls by 30 per cent i.e. to 70 million Ringgit, then the foreign buyer need to pay only 14 million in US currency.6. Thus a business that was worth US40 million Dollars could be bought for only US14 million Dollars because of the effect of devaluing the currency by 50 per cent.7. Obviously if foreign capital was allowed to buy local businesses at the time of the financial crisis, it would have acquired the local business very, very cheaply.8. If after they had bought all the banks and businesses at these low prices, the devaluation of the currency is stopped, the value of the entities acquired by the foreigners would recover. They could then sell their acquisitions at a high price and make large profits.9. We must not suspect that the IMF and the World Bank was collaborating with these foreign investors to rape the countries concerned. They are too honorable. But the fact remains that the condition that the domestic market must be open to foreign investors brought about the results stated above.10. Malaysia decided not to borrow from the IMF and not to open its market. We decided to bailout our companies which were in distress.11. Bailout means putting in money to revive the business but the ownership of the business remains with the original owner. That is what the US Government did when their banks were going bankrupt. The ownership of the banks and businesses bailed out by the US Government remained with the original owners.12. But when foreign or local capital bought up the failed or distressed companies, they were not bailing out these companies. They were simply taking advantage of the financial problems of the companies to buy at fire-sale prices.13. Frequently the amount the owners get for the sale of their businesses were not sufficient for payment of their debts even.14. This is what is meant by a buyout. The owners were forced to part with their businesses at a loss. This is not a bailout.15. It is important to understand the difference. Very frequently those who want to bad-mouth certain people would accuse them of being bailed out when they were in fact being forced to accept a buyout at fire-sale prices because of the distress caused by the devaluation of the currency.16. The US Government bailed out the failed banks and businesses with trillions of dollars during the present crisis. Yet the United States and their media condemned the countries of East Asia for doing the same on a smaller scale. This is a blatant example of double standards and hypocrisy of monumental proportions.
PD User at 2011-08-17114.160.71.*
1. One commenter on my blog does not think the hedge funds are doing anything wrong. That depends on what one considers to be wrong.2. Hedge funds works on borrowed money. That is quite normal and acceptable. But they borrow anything up to thirty times the funds held by them. Ordinary investors cannot do this.3. Investors therefore have to invest in hedge funds in order to take advantage of the borrowing capacity of the funds.4. If an investor invests 1 million dollars, the hedge fund can borrow 30 million dollars. With this 30 million the hedge funds can invest in a variety of shares etc.5. Obviously when the shares yield returns they will be 30 times the return on the 1 million invested with the funds.6. After paying interest on the loans and subtracting the commission due to the managers of the funds there would still be a lot of profits left to pay to the original 1 million dollar investor. Paying this investor a 20% – 30% return on his 1 million investments would be well within the amount earned from the 30 million investments.7. I am simplifying the example a little but essentially this is what happens. The savvy fund managers, very knowledgeable about the market can also guarantee the return on the 30 million and certainly the high return on the 1 million.8. But supposing the investments by the fund result in a loss, the amount lost would also be 30 times more than the losses to be sustained by 1 million investment.9. Assuming that the loss is 5%. On 30 million it would amount to 1.5 million. The loss cannot be met by the original 1 million investment. If the interest and other charges on the 30 million is added, there is no way for the hedge fund managers to cover the losses. That is when the 1 million investment would be lost. Orange County in California was bankrupted in this way by the investment in the hedge funds.10. The operation by this hedge fund is legitimate. It can result in huge returns for the investors. It can also result in the investor becoming bankrupt. In America it has contributed to the financial crisis plaguing it today.11. Whether we consider the investment through the hedge fund is good or bad depends on us. If we don’t mind the collapse of the financial institutions then it is good. But most people regard the current financial meltdown as bad.

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