The 4th China International Finance Forum

Shanghai, People's Republic of China, 21 September 2007
  • Speech by Ambassador Colin Heseltine, Executive Director, APEC Secretariat
I am delighted to speak to you today about APEC - what it is, what it does, and the importance of the finance sector to the APEC forum. Indeed, financial sector reform, which is the key theme of this conference, has this year become an integral part of the APEC agenda at a number of levels including Leaders, Finance Ministers and APEC's business arm - ABAC.
The APEC region has experienced tremendous gains since its formation in 1989. APEC members account for half of world trade, 41 per cent of world population and 57 per cent of world GDP. Per capita GDP has increased by 26 per cent compared with eight per cent for non-APEC economies. Tariffs in APEC economies have decreased from 17 per cent in 1988 to six per cent in 2004. And more efficient customs procedures, progress towards paperless trading, and other trade facilitation measures are saving businesses millions of dollars each year.
How APEC Operates
In achieving its status as the pre-eminent organization promoting economic growth in the Asia-Pacific region, APEC has developed some unique ways of conducting its business. Unlike negotiating bodies such as the WTO, APEC works on the basis of voluntarism, consensus and concerted unilateralism, and provides a forum for discussing best practice advice and guidelines in a wide range of governance and technical issues.
The Leaders' Meeting is the most visible event, and the highlight, of the APEC year. At this meeting it is the Leaders who set the priorities for APEC and make the key decisions that are then implemented by ministers and officials from each economy.
For APEC to meet its objectives across such a broad spectrum of issues, political support not only from Leaders, but from government ministers is essential. Since 1989 there have been meetings of ministers from 15 different portfolios.
Most relevant to today's discussions is the APEC Finance Ministers Meeting that meets annually to share information on regional macroeconomic and financial developments and exchange views on national and regional policy priorities. Their goal is to promote sound and credible policies for sustainable and broad-based development in the APEC region. Finance Ministers have a key interest in many of the issues that are discussed at the Leaders' Meeting, particularly those with implications for economic growth. They provide useful perspectives on policy responses to issues that are of importance to the APEC region and are discussed by Leaders. I will describe how APEC Finance Ministers have provided insights on these issues a little later in my speech.
Another important component of the APEC forum is its unique relationship with the private sector. The APEC Business Advisory Council, or ABAC, consists of three business representatives appointed by the Leaders of each member economy. ABAC members meet with Leaders each year to provide recommendations on issues that are of importance to business in the region. ABAC also interacts closely with APEC Finance Ministers, and is a significant contributor to APEC's finance-related work program through its research, input of business views, and capacity-building efforts.
APEC's Priorities
This year, under Australia's chairmanship, APEC deliberated on many issues of critical importance to the APEC region, some of which have only emerged very recently in response to the rapidly changing international environment. Let me touch briefly on a few of those issues, and the contribution made by APEC Finance Ministers.
Primacy of the Multilateral Trading System
APEC's original commitment to trade and investment liberalization remains undiminished. Key elements in this objective are strengthening the multilateral trading system and working to achieve the Bogor goals of free and open trade in developed and developing economies by 2010 and 2020 respectively.
For APEC economies, the WTO remains the primary mechanism by which we aim to achieve free and open trade. Recognizing the urgent need for progress in the WTO DDA negotiations, Leaders in Sydney pledged their commitment to work with renewed energy to deliver an ambitious and balanced result.
Energy Security and Climate Change
For the first time in APEC history climate change was an important area of discussion. The APEC region has a major stake in global responses to the challenges of climate change, energy security and clean development. APEC economies account for 60 per cent of global energy demand and include the world's four largest energy consumers, as well as some major energy producers. Economic growth, energy security and climate change are fundamental and interlinked challenges for the APEC region. This year Leaders spelled out APEC's commitment to ensuring the energy needs of the economies of the region, while at the same time, addressing the issue of environmental quality and contributing to the reduction of greenhouse gas emissions.
Potential policy responses to climate change were also high on the agenda of Finance Ministers, with Ministers agreeing that energy security and climate change are fundamentally economic issues that are best addressed through market-based solutions. To that end Finance Ministers discussed a range of policy instruments that could be adopted to protect member economies from the effects of higher and more volatile energy prices as well as the development and linking of market-based economic policy responses to the challenges of climate change.
New Ways to Promote Regional Economic Integration
Last November APEC Leaders asked officials to prepare a study on ways to promote regional economic integration, including a Free Trade Area of the Asia Pacific as a long-term prospect. While economic integration has, of course, always been a key objective of APEC this was the first time this issue had been on the formal Leaders agenda.
An important part of promoting regional economic integration is the strengthening of financial markets. In light of this, APEC Leaders agreed to explore options to secure diversified and deeper capital markets and address domestic structural policies that pose barriers to deepening and developing financial markets. And of course, Finance Ministers will have a key role in progressing continued efforts in this area.
Structural Reform - Behind the Borders
Business people in the APEC region are looking for deeper structural reform within domestic APEC economies to make them more transparent and efficient, and less bureaucratic, costly and burdensome for business. Studies by the World Bank and others suggest that behind-the-border reforms could be worth in the range of $100-148 billion per annum in new trade and investment for APEC economies.
Emphasis has been put on the critical importance of investment to economic growth and development. To improve the investment climate of the region APEC will undertake a study of bilateral investment agreements and core investment-related elements of existing FTAs with a view to developing principles for investment agreements.
APEC's Economic Committee has been tasked with leading the structural reform work within APEC, in close collaboration with Finance Ministers, who have an interest in ensuring sustained growth within their economies, and a particular interest in behind-the-border barriers to investment. APEC's Finance Ministers have also been asked to explore options for broadening the institutional base and range of instruments available in regional financial markets, recognizing the important role played by financial intermediaries.
Financial Services Sector
I would like to speak briefly now about the work APEC is doing to help ensure the health of the financial services sector which is a theme of this conference. Given the importance of a healthy financial services sector to economic growth and prosperity, it is no surprise that the development of the financial services industry is a recurrent topic of discussion by APEC Senior Finance Officials and Finance Ministers.
APEC's Finance Ministers are helping to boost the development of the financial services industry in the region by ensuring that domestic policy agencies and regulators are well-equipped to develop, enforce and review regulation. An excellent example of such capacity-building initiatives is the Asia-Pacific Finance and Development Program (AFDP), which is run by the Asia-Pacific Finance and Development Center (AFDC) in China. The AFDP focuses on capacity building on issues of regional concern in the fields of finance and development. Examples of capacity-building areas are SME financing and bank risk management.
Small and Medium Enterprises and Financial Services
Another area of important activity in APEC relates to small and medium enterprises. The economic backbone of the region, SMEs account for over 95% of all enterprises and employ as much as 60% of the work force. However, while they make a very important contribution to GDP growth and socio-economic development, they only account for about 30-35% of exports.
Unfortunately, the ability of SMEs to access capital has been affected by the decline in investment levels in parts of the APEC region after the 1997-1998 financial crises. While investment as a proportion of GDP across APEC economies as a whole has remained relatively stable over the last decade at around 24 per cent, this masks substantial differences in investment patterns within the region in recent years.
APEC has exerted considerable efforts over the years to create an environment conducive to the development of SMEs and to address some of the barriers faced, such as in the area of accessing finance. One example is the APEC initiative which was established in 2003 with the signing of a Memorandum of Understanding on Cooperation among APEC Financial Institutions Dealing with SMEs. This is aimed at promoting financial cooperation - in debt and equity financing - and technical cooperation
In closing I would like to say that it is not the task only of governments, or bodies such as APEC to address the issue of financial service innovation for SMEs. It is also the responsibility of the private sector, as a key player in the finance sector, to contribute to developing solutions. And it is in forums such as this, in which participants discuss these issues with a view to identifying solutions which can contribute to advancing progress in this area, that real and tangible progress can be made.
Thank you.