Realising the potential of trade in Asia
Global trade is undergoing significant change. The increasing trend of anti-globalisation – and, in particular, the burgeoning US-China trade war – is challenging the established, interwoven ecosystem of world trade, potentially impacting access to US markets and posing a threat to Asian export volumes. Yet, Asian trade remains robust.
• Asia is positioned as a trade engine, with a strong manufacturing base, a rapidly growing consumer market and a commitment to enhancing intra- and interregional connectivity.
• Local banks are increasingly looking to harness new technology capabilities to help streamline the flow of trade finance.
• Correspondent banking remains a crucial facilitator of robust trade growth.
Asia is a thriving manufacturing and export base, fuelled by rising wealth levels and rapid population growth – its share of the world population is expected to remain above 50% until at least 2030 – it is also a rapidly growing import market. Intraregional trade to satisfy these increasing consumer demands is therefore increasing. According to the Asian Development Bank (ADB), Asia is quickly becoming such a large market that expanding trade within the region might help to offset “lost” US exports .
Collaborative frameworks to boost trade
With economies in Asia strengthening, efforts are underway to promote more free-flowing intraregional trade. For example, the Belt and Road Initiative (BRI) is increasing connectivity through improved infrastructure. This will help to reduce logistics costs and shipping times and could ultimately boost trade within Asia.
The BRI project could also help to support the vision of the ASEAN Economic Community (AEC), which is to bring Southeast Asian economies together as a single production base and consumer market. If this were to be achieved, ASEAN would become the world’s third largest market in terms of population , with a combined GDP of $2.4 trillion .
Elsewhere, as the AEC aims for regional cohesiveness, the Regional Comprehensive Economic Partnership (RCEP) free trade agreement is striving to widen that cohesive geographic space. As well as the 10 ASEAN countries, the RCEP also includes Japan, India, South Korea, Australia, New Zealand and – its instigator – China. The purpose of RCEP is to encourage trade across member states, and would help to secure new opportunities against the backdrop of US protectionist policies.
With a rapidly growing consumer base, a hunger for growth and a commitment to enhancing intra- and interregional connectivity, Asia is a region of opportunity for trade. Ensuring businesses can capture the full breadth of opportunities requires effective trade finance capabilities and financial collaboration. This is all the more important in light of recent findings from BNY Mellon's survey, which revealed that trade finance rejection rates had increased in a third of institutions surveyed. Banks need to reverse this trend if they are to deliver optimised trade finance solutions to their clients and ensure trade can flow effectively.
Digital developments are key in this respect, and banks in Asia are looking to leverage the powerful capabilities of technological innovation to enhance trade. Optical character recognition (OCR) and intelligent character recognition (ICR), for example, are increasingly being applied by banks to enhance documentation verification. OCR technology helps to streamline time-consuming processes by “reading” data from a physical document and creating an identical digital version. ICR can remember intricate data patterns, meaning it could be particularly useful for recognising unusual activity and mitigating manual errors or fraud.
While still in the early stages of development, blockchain holds significant potential for creating greater transparency and security for trade. Crucially, once a “block” or document is placed on the blockchain it is irrevocable. This means it could ultimately provide unparalleled levels of visibility and legitimacy, thereby helping to address risk-related concerns. Blockchain momentum is building rapidly in Asia, with significant investment into the technology.
Developments in payments, such as SWIFT gpi, are enabling visibility of payment along the entire value chain. Such increased transparency can help to facilitate trade in unfamiliar markets, with new counterparties.
Partnering for trade
Banks throughout Asia recognise the importance of future-proofing their businesses to support evolving needs. Yet, resource constraints can make investment into innovative capabilities a challenge.
Correspondent banking – non-compete partnerships between local and global banks – can be a powerful means of sharing not only technical capabilities but also knowledge, expertise and connections. Through such alliances, banks can provide clients with enhanced service and trade experiences, without the need for a substantial investment. Furthermore, the complexity of trade – with so many different parties and requirements involved – makes it very difficult to navigate on a peer-to-peer basis. Having an intermediary in these transactions can be instrumental in keeping trade secure and flowing smoothly.
As Asia’s markets continue to thrive, Asia’s position as both anchor and engine for global trade has become firmly established. As initiatives centred upon cooperation and connectivity further fuel trade opportunities, by establishing local-global bank alliances, banks can deliver the tools needed to ensure that trade, in the region and beyond, flows and flourishes.
Arnon Goldstein is the regional head of relationship management for Asia Pacific, and Joon Kim is the global head of trade finance product and portfolio management at BNY Mellon Treasury Services
Keywords: Global Trade, Free Trade, Interregional Connectivity, Blockchain, Belt And Road, Aec, Ocr, Rcep, Swift Gpi
Institution: Asia Development Bank, ASEAN Economic Council, BNY Mellon