In a region in which the people are traditionally fond of saving money, determining where and how to invest idle capital is a long-standing puzzle.

East Asia, with the world's highest savings ratio, is facing this dilemma now, despite a thirst for funds brought about by galloping growth.

In China, trillions of yuan are asleep in the hands of wealthy people in the prosperous Yangtze River and Pearl River deltas. Governments in those regions have similar headaches huge amounts of foreign exchange reserves have accumulated, and are waiting for investment channels other than US Treasury bonds.

The latest report released by the World Bank indicates developing nations in East Asia face a massive funding challenge, as they need to spend more than US$1 trillion over the next five years in infrastructure construction.

Such a situation, in the eyes of Qin Yaqing, a veteran Chinese expert on East Asia studies, creates huge potential for better investment co-operation among East Asian nations.

Moreover, an effective economic co-operation mechanism will steer the creation of the East Asian community a bright outlook painted by regional leaders last year, says Qin, vice-president of China Foreign Affairs University.

"Integration will create a huge fortune for the nations involved, and more and more savvy business people in the region are keeping their eyes open," he tells China Business Weekly.

Take China's affluent Pearl River Delta as an example. Although it created economic miracles in the 1980s and early 1990s, the region lost its glimmer in recent years, under aggressive competition from the Yangtze River Delta.

Trying to regain its past glory, the area has been expanding regional co-operation. In 2003, it proposed the concept of Greater Pearl River Delta to link its development with Hong Kong and Macao, and it launched the Pan Pearl River Delta last year to forge closer ties with several inland provinces.

Where should it go next? The answer: Bordering Southeast Asia. "Fortifying co-operation with Southeast Asia will give new life to the area," Qin predicts.

The Pearl River Delta will by no means be the only beneficiary of the greater investment co-operation in East Asia.

For private investors in the whole region, a multilateral investment co-operation mechanism can ease their biggest headaches inadequate information, long construction periods and low returns on infrastructure projects, and political and social stability concerns in the regions in which they invest.

These problems can be solved with a co-ordinated legal system in the region and bilateral investment-protection pacts signed between the nations, Qin says.

Qin's university, which is affiliated with the Foreign Ministry, will sponsor a forum on East Asia investment early next month in Weihai, Shandong Province. Topics will include co-operation in investment, finance, energy, mineral and manufacturing sectors.

For infrastructure construction projects, which require huge investments and long periods of construction, a feasible way to pool funds will be bonds issued by governments, while investors just need to buy the bonds guaranteed by government credit.

Free Trade Areas (FTA) will be another important driving force in East Asian economic integration.

Several FTAs including those between the Association of Southeast Asian Nations (ASEAN) and China, Japan and South Korea are being negotiated.

Chinese Premier Wen Jiabao in 2003 proposed an East Asia FTA, which would cover China, Japan, South Korea and the 10 members of ASEAN.

The proposal received responses from leaders of the nations. Earlier this year, China announced it will begin an FTA feasibility study with relevant countries.

A common currency could follow trade and investment integration, Qin says, noting the creation of the European Union (EU) eventually resulted in the birth of the euro.

"I believe, one day, East Asia will use a single currency, although there is a long way to go," he says.

Economic co-operation will be the easiest step in building the East Asia community, as nations can seek the most common interests in this area, he adds.

Asian leaders realized the importance of regional co-operation after the 1997 Asian financial turmoil, which dealt a heavy blow to economies in countries such as Thailand, Indonesia and South Korea.

Moreover, against the backdrop of sweeping globalization, the region was also eager to find a co-operative mechanism to cushion the negative impact of globalization.

In 2003, leaders from ASEAN's member nations signed a declaration aimed at building an ASEAN community similar to the EU.

Last November, the summit of ASEAN and China, Japan and South Korea, held in Vientiane, the Laos, decided to set regional integration of East Asia as a long-term target.

Such efforts won't be affected by the recent setbacks in EU integration, including the rejection, by France and the Netherlands, of the proposed EU constitution, he says.

The EU remains a success story, and sets a good example for East Asian nations, he adds.

However, compared with the EU, East Asia has more diverse cultures and levels of economic development, which may pose great challenges to regional integration.

But ASEAN, which also has diverse cultures and development, has succeeded in seeking a consensus and in making diversification a positive factor. Such experiences can be borrowed in the building of an East Asian community.

Some experts also worry about possible squabbles between China and Japan over the integrated region's leadership, which could hamper progress. Some experts have also proposed to turn ASEAN 10+3 into 3+ASEAN 10.

China has reiterated, time and again, it respects and supports the leading role of ASEAN. "China's role is to promote it, rather than to lead it," Qin says.

If Japan holds a similar attitude, the integration will proceed smoothly, he says.

Qin notes bilateral relations between big countries; for example, China and Japan, which is at historical low, will affect the progress of regional integration.

But multilateral arrangements may help solve bilateral disputes, Qin says.

"Under a multilateral framework, it will be easier for both sides to find common interests, such as financial co-operation and energy co-operation," Qin says.

China and Japan have the same challenge in dealing with the huge amount of foreign exchange reserves. In the energy sector, China has a huge demand for energy, while Japan is famous for its energy-saving technologies.

In the future, finding ways of expanding such common economic interests to other sectors, such as national security, will be a major task to be addressed.

For business people and investors, the challenge is grasping the unprecedented opportunities.

"They need to be far-sighted," Qin says. "Yet, they must be ready for the risks, which will happen if integration suffers some setbacks. But i have good reason to believe that there will be a bright future for East Asian investment co-operation."

(China Daily 06/20/2005 page5)