This chapter studies short-term economic fluctuations or business cycles. We first introduce the Keynesian Cross model which, in contrast to classical models, allows the equilibrium output to deviate from the potential level of output. Next, we introduce the celebrated IS-LM model, which is the leading interpretation of the Keynesian theory. We also modified the IS-LM model to study interest rate policy, the small open economy with floating exchange rate, the small open economy with a fixed exchange rate, and the large open economy. Next, we derive aggregate demand (AD) from the IS-LM model and introduce the Keynesian AD-AS model. Then we introduce dynamic modeling and study two dynamic AD-AS models. Finally, we discuss two verbal theories, Keynes’ theory of employment and investment and Minsky’s financial cycles.

Since 2008 Pacific Asia has been reconfigured as a region, with China as its center. In economics, China has been the central driver and partner in growth. In politics, China has become the central concern of its neighbors. China’s GDP surpassed Japan’s in 2000, and by 2009 it equaled the combined totals of Japan, ASEAN, and Korea. While this shows China’s demographic power, it is not simply a matter of size. Its per capita GDP is now at eye level with countries such as Malaysia and Thailand. China is again the major presence in Pacific Asia, with a majority of its population and its production. Re-centered China is quite different from premodern China. China and its region are now globally integrated, and its former, cautious thin connectivity has been replaced by assertive thick connectivity. China now tries to maximize win-win contact. However, the new asymmetries worry the neighbors. China’s challenges of integrating Greater China and avoiding hostility with Japan are vital for China’s global prospects as well as its regional stature.

Crises typically originate in financial overshoot as mounting debt becomes unsustainable. Despite centuries of catastrophic experience with this phenomenon, policymakers have not figured out how to consistently avoid it. A strong human tendency to rationalize excess seems to impede recognition of a problem until it’s too late, in a "this time is different" mentality. Crisis situations put monetary and fiscal policy to their ultimate test. The Asian Financial crisis rolled across the region in 1997. As the epicenter, Thailand offers a window into the incubation and eruption of a financial crisis and lessons learned about policy response. From 2020, a crisis of a different sort has unfolded in the form of a shock to the real economy from a pandemic. The policy response to this crisis has differed greatly among Emerging East Asian economies with constraints on policy bearing on options.

Chapter 3 discusses the subsequent stage of the evolution of the AIR. The ASEAN member states shift dramatically from the start-point of the 1987 ASEAN Investment Agreement. Chapter 3 shows that this start-point was marked by a remarkable degree of conservativism, with the member states unwilling to extend fundamental liberal and protective guarantees typically found in their BITs with third countries among themselves. By contrast, Chapter 3 traces a fundamental shift by the late 1990s, where a series of internal and external events would push those members to dramatically reshape their approach to investment rules. The combination of the disastrous effects of the 1997–1998 Asian financial crisis and the rise of China as a serious economic competitor would force those states to begin to develop a deeper level of integration. That identity crisis fundamentally shapes both the normative orientation and legal norms within the 1998 ASEAN Framework Agreement. Though limited when measured against conventional legalization indicators, any such critique ignores the vitality and creativity of the key choices made in this time of crisis.

Since the 1997 handover to Mainland China, Hong Kong has endured pandemics, recessions, and financial crises. Hong Kong’s financial supervisory architecture performed relatively well following the speculative attacks on the Hong Kong dollar and the Hang Seng Index during the 1997–8 Asian Financial Crisis, the liquidity crunch in the 2008–9 global financial crisis, and the economic shutdown from the Covid-19 pandemic. There have been no major supervisory failures or financial instability despite several international financial assessments and reviews recommending structural reforms. This chapter argues that these recent crises call for Hong Kong’s financial supervisory architecture to reflect on the financial system, rather than wait for a market failure to incentivize a redesign. The ongoing financial system integration with Mainland China is placing more reliance on supervisory coordination and cooperation to manage financial stability. Hong Kong is critical to Mainland China’s financial market liberalization and internationalization which will be a key driver of financial market growth in the future. As an international financial centre, Hong Kong is actively involved in market and regulatory developments. Hong Kong has taken a leading role to ensure its financial markets evolve and are fertile to embrace prevailing market trends.

This chapter takes a regionalist perspective in exploring ways ASEAN can protect and advance consumer interests regarding consumer finance. Presently, ASEAN, as an organisation, is paying relatively little attention to the opportunities and challenges presented. The chapter explores some of the ‘traditional’ issues arising at the domestic level, including lenders: charging excessive interest rates; misleading and deceiving consumers; and harassing them or engaging in illegal activity when recovering loan repayments. Emerging issues include the rise of fintech. It offers new opportunities for financial inclusion, but also presents new challenges due to the rise of non-financial institution lenders, including those operating online platforms. Lack of proper regulation of these lenders risks regional financial instability and the exploitation of low-income consumers. Given the pace and complexity of change and the increasingly borderless nature of fintech, a regional approach could best assist with developing appropriate responses. The chapter proposes that enhanced shared knowledge and more effective networking amongst key players within ASEAN would advantage the region as a whole.