Capital Market Opinion (Ceased)
2013 Oct/15
A Thought on Korea-China Financial Cooperation
October 15, 2013
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An, Yuhua
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- Summary
- Cooperation in the real economy, e.g., bilateral trade and investments, between Korea and China has thus far progressed substantially. But financial cooperation has been unsatisfactory as the two often turned to other developed nations, such as the US and European countries. As a result, a serious imbalance exists between economic and financial integration between the two nations. Currently, Korea and China are negotiating the free trade agreement (FTA), and they should capitalize on the FTA as an opportunity to advance the financial industry to a higher level, meaning a greater degree of liberalization and international compatibility, rather than opening the financial market for limited services. For this, the two sides should think outside the box and devise clear objectives, areas, and action plans. More specifically, the goal of financial cooperation should go beyond jointly responding to financial crises. The ultimate goal should be financial integration between the two economies to develop the overall Asian economy and to build new economic driving forces. The areas for Korea-China financial cooperation should be extended to risk management, advancement to global financial markets, a stronger push for yuan internationalization, and also more integration in capital markets. In order to accomplish these goals, Korea and China should shift away from the existing multilateral dialogue channel to a bilateral, direct relationship. The most imminent challenges for the two governments now include building the capacity and capability to properly control systemic risk, improving the regulatory environment, and most importantly, going beyond the FTA’s boundary and pushing forward with a phased approach to fully liberalize and open the financial markets for each other.