But how do the institutional characteristics that drive the global integration of East Asian financial systems differ (in part) from transatlantic finance?
Focusing on China, Japan, Korea and Taiwan, we analyze Asia’s integration into global finance (global investors in Asian markets) and the internationalization of Asian finance (Asian investors in global markets), as well as the broader implications of this process for the dynamics and politics of the global financial system.
On the one hand, global investors tend to accept the developmental rules of East Asian markets when reallocating investments. While European finance converged towards neoliberalism since the 1980s, developmental characteristics – ideas about the necessity and desirability of strategically governing the economy for nation development purposes – have persisted in East Asian markets, despite an increasing influx of global capital. Whereas China clearly exhibits the most restrictive approach to foreign investors, Korean and Taiwan authorities also actively manage inbound financial flows and foreign investor activities. Even in Japan, which has for a long time been firmly integrated into global financial circuits, neoliberal logics have not fully replaced existing institutional configurations.
While the aggregate volume of global financial flows towards Asia has increased, foreign investors are not dominating or taking over Asian markets as investor access/power is constrained by the developmental logics that inform this opening process. Given the institutional differences within financial opening processes of European and East Asian finance, a growing portion of the contemporary global financial system functions differently from just 15 years ago as global investors must adapt to the developmental characteristics of these markets and play by their rules when allocating investments.
On the other hand, focusing on the growing global footprint of East Asian investment, we can see the persistence of developmentalism in the internationalization of East Asian finance across three levels: (1) through the growth of publicly directed investment flows that deviate from neoliberal norms, (2) through the active role of public authorities in facilitating/managing outward private investment, and (3) by analyzing moments of accommodation/contestation of East Asian developmentalism.
Taken together, we show how East Asia introduces new dynamics into a previously mostly neoliberal global system. More than passively facilitating investment, these public authorities play an active role in directing (strategic investments) and safeguarding (forex operations) investment flows while contesting (currency intervention) and reconfiguring (swap lines/repo facility) global macrofinancial arrangements.
These practices challenge the liberal global financial system as evidenced by the increasing politization of foreign-exchange interventions, growing rhetoric about currency manipulations, or the accommodation of developmental Asian investment through Western central banks. While current academic and policy debates mostly focus on China, we have illustrated that these should rather be understood as characteristic of the growing contestation of neoliberal finance by East Asian financial internationalization.
Overall, we observe that instead of converging with prevailing global norms, Asian finance remains substantially informed by developmental logics despite its increasing financialization and globalization. This makes the composition of the global financial system more heterogeneous, marking a tectonic shift that challenges the neoliberal transatlantic consensus that defined the pre-crisis global financial system.
Our study points towards an important blind spot in contemporary analyses of global finance. Both research that focuses on public money flows driven by reserve-accumulating Asian economies as well as macrofinancial analyses of private international finance need to expand their analytical focus to take into consideration the newly emerging Asian public-private institutional arrangements that entangle public authorities with the investment strategies of financial actors and challenge neoliberal norms of market organization.
Asia’s changing role in the global financial system
In sum, we identify commonalities and differences, both between Asian countries as well as between outward investment and internal markets:
First, as global investors venture into East Asian financial markets, their investment activities are often monitored, regulated and restricted, and they must largely adopt to non-liberal rules of market organization.
Second, while the internationalization of Asian investments is informed by both developmental and de-risking logics, East Asian public authorities nevertheless play an active role in managing investment flows for developmental purposes, introducing new public-private interactions into what had previously been a passively regulated private global financial system.
Third, we identify variation within East Asia: Japanese markets/investors are more in tune with neoliberal ideas, whereas the financial openings of Korea, Taiwan and especially China are much more aligned with developmental characteristics.