China-Asean financial cooperation for regional prosperity

ASEAN is considered a priority area for China in its neighbourhood diplomacy and vision to build a regional community with a shared future.

Although China and Asean countries have varying levels of economic development and institutional maturity, along with their respective comparative advantages and resource endowments, they have established close regional financial cooperation. This cooperation is vital for gaining access to financing and investment to enhance economic growth and regional prosperity.

The Belt and Road Initiative (BRI), which led to the establishment of the Asian Infrastructure Investment Bank, has not only promoted financial cooperation between China and Asean countries but has also, to some extent, supported the internationalisation of the Renminbi (RMB).

Over the years, this financial cooperation has expanded from currency swap agreements to developing a cooperative framework for local currency settlement between parties.

For example, China has approved RMB clearing banks in Malaysia, Singapore, the Philippines, Thailand, Laos and Cambodia, indicating greater willingness among Asean countries to adopt RMB for settlement and foreign reserve purposes.

In terms of development cooperation, China regards Asean as a crucial area for the joint development of BRI projects. Due to a lack of capital and technology, many Asean countries still face limited infrastructure connectivity. However, these countries possess abundant resources and a broad market.

China’s strengths, on the other hand, lie in its abundant funds, talents and mature technology as evidenced by its advanced infrastructure such as high-speed rail, ports and energy development.

This offers vast opportunities for both sides to cooperate in regional infrastructure financing and development to support the realisation of key BRI projects.

China has also demonstrated that it attaches great importance to the cooperative relationship with Asean through joint efforts in capital market development.

Regarding equity market cooperation, China and Asean countries support their domestic companies seeking to list shares on each other’s stock exchanges to attract foreign investors. Initiatives have been taken to streamline the listing process.

Moreover, the stock exchanges from both sides have jointly developed stock indices to elevate the profile and visibility of their capital markets.

For instance, the Singapore Exchange (SGX) Indices and China Securities Index Co Ltd (CSI), the index provider for the Shanghai Stock Exchange, recently launched the CSI SGX Asia 100 Indices in November, following the introduction of the CSI SGX Emerging Asia Technology Index in 2024.

In terms of bond market cooperation, China and Asean countries have also proactively formulated policies to enhance the accessibility of their bond markets.

For example, Bank of China and DBS Bank recently agreed to introduce an over-the-counter bond market arrangement that enables designated banks in Singapore to provide institutional investors with access to selected fixed income securities on the China Interbank Bond Market.

The formal implementation of the Regional Comprehensive Economic Partnership (RCEP) agreement has deepened China-Asean financial cooperation. While RCEP has lowered the barriers to trade and investment between China and Asean countries, these countries have acknowledged the importance of strengthening financial regulatory cooperation to safeguard financial system stability and investor protection.

For instance, rules regarding new financial services as well as the processing and transfer of financial information have been introduced to promote fairness, transparency and stability in financial cooperation.

The recent signing of the Asean-China Free Trade Area 3.0 in October offers promising opportunities to unlock new avenues for financial cooperation, especially in emerging areas like digital and green economies.

As China and Asean countries explore further liberalisation of digital trade and trade in green products, it is essential for both sides to collaborate on innovations in digital and green financial products and services to accelerate the digitalisation and green transition of regional industries and promote regional financial inclusion and digital growth.

China, one of the leading countries globally in investment, development and adoption of new technologies, including financial technology, can draw on its digital transformation experience to deepen financial collaboration with Asean countries in areas like cross-border e-commerce and mobile payment systems.

Besides, given its prominent role as one of Asia’s most dynamic green finance regions, China should extend its green finance efforts by engaging in regional green financial cooperation with Asean countries to address environmental issues and promote a sustainable future collectively.

Challenges and the way forward

To strengthen China-Asean financial cooperation, the following challenges need to be addressed.

First, policymakers in China and Asean countries should collaborate on harmonising the regulatory system for supervising the financial transactions arising from this regional cooperation, which is grounded on mutual trust and monitoring, as well as shared rules.

Moreover, a sound regulatory system should be in place for managing any financial risks that may arise from this financial cooperation. For example, proper regulations on financial information disclosure, including transparency of financing arrangements, and cross-border data transmission, should be formulated to mitigate information asymmetry and increase the willingness of both sides to cooperate.

Furthermore, China should take into account the disparities in the level of economic development and institutional maturity among Asean countries when establishing financial cooperation.

Specifically, for Asean countries with more mature financial markets, greater emphasis should be placed on bilateral cooperation to promote the internationalisation of financial markets.

For countries with underdeveloped financial markets, China can share its expertise and experience to assist in the development of their financial markets.

In a nutshell, the financial cooperation between China and Asean countries serves as a robust engine driving the economic transformation and growth of these countries. This cooperation also signifies the important role these countries play in reshaping the world economic and financial order.

Moving forward, China and Asean’s financial cooperation is poised to scale greater heights. As both sides strengthen their engagement and commitment, a solid path is laid for a more interconnected financial system and market, which draws us another step closer to establishing a China-Asean community with a shared future.

Dr Chow Yee Peng is an Associate Professor at Tunku Abdul Rahman University of Management and Technology (TAR UMT). The views expressed here are entirely the writer’s own.

The SEARCH Scholar Series is a social responsibility programme jointly organised by the South-East Asia Research Centre for Humanities (SEARCH) and TAR UMT.