From financial regionalism to capital market regionalization: Aasian bond market development and China-ASEAN financial connectivity

Since the 1997 Asian Financial Crisis, East Asian economies have engaged in multiple official cooperative initiatives to strengthen the region’s financial resilience. While numerous studies have sought to examine how such inter-state efforts constitute the rise of East Asian “financial regionalism”, few have explored whether this top-down cooperation has translated into “capital market regionalization”—the bottom-up integration of regional capital markets. This paper fills this gap by investigating the extent to which and how regional institution building facilitated capital market integration. Utilizing the IMF Coordinated Portfolio Investment Survey data (1997–2024), we identify a significant rise in intraregional portfolio investment in the debt securities market, driven largely by China’s emergence as a major regional creditor post-2008. Through a process tracing analysis of the Asian Bond Markets Initiative (ABMI), we argue that financial regionalism has indeed actively facilitated capital market regionalization. Specifically, we demonstrate that regional institution building efforts at the official level and China’s strategic financial opening up in portfolio investment have substantially strengthened China-ASEAN bond market connectivity, showing that East Asian capital market integration is deeply rooted in state-led cooperative frameworks.