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Asia’s growth engines are in top gear

The economies of China, Japan and South Korea account for about 25 percent of world output. In the fourth quarter of last year, they grew at annual rates of 7.7 percent, 2.7 percent and 4 percent, respectively.

Who says better? None of the economies of comparable size.

(Read more: Japan gets inflation, but is it the 'good' stuff?)

And Japan looks like it's just warming up for a more balanced stride of economic activity. As it befits the third-largest economy in the world, 69 percent of Japan's fourth quarter growth was accounted for by domestic demand. That is a decisive and welcome break from the traditional export-led growth, which had kept Japan living off the rest of the world during most of its impressive post-war economic development.

This new composition of Japanese growth also makes irrelevant the fear expressed by some observers that the yen's 12 percent trade-weighted depreciation over the last twelve months was a setup for an export tsunami.

Shubiya district, Tokyo, Japan
Getty Images
Shubiya district, Tokyo, Japan

A closer look at the latest Japanese numbers shows that the expansionary monetary policy has spurred household consumption and residential investment -- the crucial growth tandem representing nearly two-thirds of the economy. This time, Tokyo fired up the turbo exactly where it should. The Japanese economy also got an additional boost from anticipatory buying as consumers rushed to beat higher sales taxes next April.

Double-digit growth in residential investments is particularly heartening. Those who thoughtlessly snigger at Japan's increasing housing stock should have a chat, as I did, with young Japanese "salarymen" and "salarywomen" who continue to live with their parents because they could not afford a house of their own to marry and start a family. They reminded me of the same, and very sad, case of young people in Italy they call "mammone" (mamma boys).

(Read more: The spotlight stays on China this week)

"Reform arrows" and "knowledge economy"

So, go ahead Japan, make the housing more affordable, give an incentive to what Russia calls "mother's capital," offer more daycare centers to bring more women into the labor force and stop the demographic erosion of that great Asian civilization.

Your women power will beat the robot power – have no illusion about that. Only a growing and well-trained manpower will keep you competitive and at the top of the world economy.

But, while firing your "reform arrows," do keep your promise to open up your markets so that your trading partners can sell you a little more to create jobs in the rest of the world.

South Korea needs no reminding to do any of these things; it understands better than most other countries that it has to adjust to shifting market forces as it strives to compete in the most lucrative and technologically advanced segments of global industry.

Indeed, the world is abuzz about China's structural reforms while virtually ignoring that similar changes are being implemented in South Korea. Both countries are trying to tame the large conglomerates and to reduce their domination of national economy.

These changes will take time because of their difficult systemic nature and their broad impact on the organization of labor and product markets.

In South Korea, the "chaebols" will continue to be the mainstay of the country's economy for the foreseeable future. But a strong government initiative is afoot to stimulate the creation of small- and medium-sized companies. Seoul expects that these nimble competitors will spearhead technological innovation and efficiency gains to raise the potential growth rate of the "knowledge economy" to 4 percent.

Some investment strategists think that this is an "exciting" policy move.

(Read more: China's NPC: Here's what to watch for)

I agree, and I also think that President Park's vigorous support for thawing relations with North Korea offers equally promising political and economic prospects. During the cabinet meeting last Tuesday, she announced the formation of a special committee in her office that will work on "systematic and constructive" steps toward the Korean unification. And then she followed that up yesterday by calling on the North to continue with more frequent family reunions.

Peace and comity

Whether this new "sunshine policy" will work remains to be seen, but Seoul's conciliatory policy gestures, Pyongyang's invitation to "stop insulting each other" and the resumption of family visits are a welcome diversion from hostile military drills and North's short-range missile launches.

Financial markets need a similar diversion from their obsessive doubts about China's growth outlook. Luckily, the wagers there are much less serious because most of the growth bets are contained in the narrow range of 7-7.5 percent. In view of that, it seems puzzling that good numbers on economic activity and Beijing's credible policy reassurances are readily dismissed by China "experts" as flukes and wishful thinking.

Doubts may well be the beginning of wisdom, but I would not push that too far. China's 7 percent growth is not in doubt. I do agree, however, that the country's huge challenges of economic reform are a sobering thought. Here are some of the problems Beijing is wrestling with: (a) forcing state-owned enterprises to behave like competitive firms in a market economy, (b) a fundamental reform of the financial system and (c) the yuan's convertibility.

(Read more: South Korea's growth figures show recovery intact)

That is all part of China's gradual transition toward an actively managed social market economy. To me, all that looks like a leaf taken from some European social democracies.

Surely, this is a tough reform agenda. But China has successfully done more difficult things in the recent past, and there is no need for what the Prime Minister Li Keqiang called "wrist slashing" pains. Managed properly, all these reforms can be conducted under conditions of sustained economic activity. That is possible because China's enormous savings can finance a high level of output and employment as the country continues to build infrastructure, social welfare, education and a cleaner environment.

It is, therefore, a reasonably safe conclusion that strong growth dynamics driving these three Asian economies should raise no particular concern in investors' minds. Unfortunately, investors have every reason to worry about peace and comity in that part of the world.

The intractable Sino-Japanese military standoff in the East and South China Seas, unrelenting belligerence about painful history of aggression and colonization, and ostensible commemorations of war and hideous war crimes are not the road to conciliation and broadening economic ties.

Maybe that wise lady in Seoul can show the way.

Michael Ivanovitch is president of MSI Global, a New York-based economic research company. He also served as a senior economist at the OECD in Paris, international economist at the Federal Reserve Bank of New York and taught economics at Columbia.

Follow the author on Twitter @msiglobal9

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