Globalization, Gating, and Risk Finance

6Asia: Financial Environment and Risks

Motivation

Asia’s economies have fueled the expansion of globalization and are assuming an ever larger role in global finance. This chapter provides an overview and a perspective on Asia’s financial and economic development, emphasizing the structures underlying its growth and its contribution to global finance. These include increased trade, currency usage, foreign investment, and the development of a banking sector and bond and stock markets. In this chapter, we feature Asian capital and equity markets and outline different approaches to measure and evaluate the investment and the risks that Asia’s financial industry is facing. Additionally, a detailed discussion of China and Japan is presented. For China, we highlight the importance of the banking sector, the role of state‐owned enterprises, and the challenges facing equity and bond markets, with an emphasis on rising debt. For Japan, in addition to the banking sector, issues related to the effectiveness of corporate governance, the importance of industrial companies, and the volatility of its government bonds are discussed.

6.1 Introduction

Asia’s nations differ broadly in their degree of economic and financial development, as well as in their social, political, religious, cultural, ethnic, linguistic, and geographical properties. Their combined economic activities have contributed to an increase in a global output, trade, consumption, and demand, and supply by providing new sources ...