Development of horizontal and vertical trade in Asia

It was often said in the near past that East Asian countries are not economically intertwined and their culture is so diversified that they will never form a unity. But today the economies of East Asian countries are far more intertwined than in the past. Japanese, European and American automobile and electrical goods factories are now opened in China and ASEAN countries, and the factories of one company trade parts and engines with other factories from their own company. For example, Japan has an automobile engine factory in Thailand; and engines are sent directly to another factory in Guangzhou in China. Such tight integration and division of labor is now being formed in East Asia.
In 2003, East Asian inter-regional trade constituted 54.5% of the total volume. The figure for the EU is 58.1%. We are almost close to the EU's level, though countries in Asia trade with each other not so much finished products (as is done in the EU) as investment products (machineries, equipments and parts from Japan, for example).
And now please take a look at this map, which very clearly demonstrates the intertwined economic relations in Asia. This is a network of highways, which the governments of Japan, China and ASEAN countries, the Asian Development Bank, the World Bank and the European Development Bank, are together building in the whole Eurasian Continent.

This will create better connections between east and west, and between south and north. This facilitates division of labor. Relying on these highways, automobile factories in Chinese Guangzhou Province, that is the centre of the automobile industry in China, can work together with affiliated factories in Thailand, Malaysia and in the future, Myanmar and even India. In Central Asia the Asian Development Bank, Japan and also China are now actively constructing networks of highways, too.
Things are changing. The Japanese and Chinese Governments and all other governments are intentionally building infrastructure for larger intra-regional economic cooperation, which will create conditions for stability and prosperity in the region.

A single currency for Asia?--too early to talk about, but efforts are being done

If the economy is so intertwined, is it possible to create a single currency for Asia? Let me start with the Chiang Mai Agreement. This is an East Asian monetary arrangement (a network of currency swap agreements for emergency) under the auspices of Japan, China and ASEAN countries. In case of a financial crisis, each country has right to ask for yen, baht, Chinese yuan etc as a solution for possible insolvency.
Japan has been helping ASEAN countries to develop their own bond markets so that they will not have to rely upon foreign capital too much. In 1997 the massive exodus of the foreign capita created a financial havoc. And in the wake of the global financial crisis in 2008 the Asian Development Bank has doubled its capital. Incidentally Japan and the U.S. are the biggest contributors to the Asian Development Bank.
So, can combination of all these arrangements lead to creations of a unified East Asian currency and eventually establishment of an Asian Monetary Fund? Our answer is, in one word, it is too early to talk about it. At least we have to wait for the total convertibility of the Chinese yuan, which most probably will take at least another ten years or so. Only then it will become possible to create some single counting unit on the basis of major convertible currencies in Asia, namely Japanese yen, U.S. dollar, Chinese yuan and a few more others.
Further, beyond the currency unification will be the far goal, political unity. For example Japan's former Prime Minister Nakasone once mentioned establishment of Asian Parliament and Asian Constitution. And I am sure that he does not have any ambition to become Asian President.

The "Mega market" in Asia--opportunity and challenge for us
Let me continue a little bit before I stop. Before the Opium War, China and India produced about 50% of the world GDP. I do not know how it was calculated, but it is based on the work of a famous scholar called Andre Gunter Frank, "Reorient". Today this picture is at least partially coming back to our time. Talks about the big prospects in BRICs or G20 are rampant.
Sure, the Asian market will be very important for all of us, but we should stay sober and keep balanced policy. For example the Asian market will not fully substitute the U.S. market. Both are important.
On the other hand the growing importance of the Asian market forces us to bring some changes in our commercial strategy. For example we need to significantly lower prices for our products in Asian countries; for example, if we want to sell automobiles in India, we will have to drastically lower the prices, because Tata Conglomerate in India has just started selling a new model 'Nano' for only 2,000 U.S. dollars, though currently they can produce it in a small quantity, and the most people in the middle class prefer more expensive ones as status symbol.
We need less fanciness and more pragmatism for our products. For example, our cellular phones are so intricate; but they have too many functions, which we do not use daily and they are very expensive. That is why we have lost our export markets for mobile telephones. We need more pragmatism in our products. But in case of New Zealand, things might be the other way around. Agricultural products like cheese and other products should be distinguished from other countries' ones by brands and higher quality. Our commercial strategies vis-à-vis the emerging "mega markets" should be flexible and divergent, depending upon which products you are talking about.
Thank you.
(Mr. Kawato is the author of an epic novel in Russia, "LAND OF LEGEND, LAND OF DREAM--The Tale of Ilya". Its background is the fall of the Soviet Union and the ensuing social upheaval. The hero of the novel is an independently-minded Russian journalist Il'ya, who eventually becomes a national poet only to be assassinated. It is a Russian novel written by a Japanese, but most of the Russian readers even did not notice that the author was a foreigner. Now its English translation is posted in Mr.Kawato's blog for free. Please enjoy it at http://www.japan-world-trends.com/en/theses/the_world/russia/my_epic_novel_on_contemporary.php)