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Asia builds while the EU talks about it

A ceremony is held to open the 1,507-meter long Mihajlo Pupin Bridge spanning the River Danube between the Zemun and Borca districts of Belgrade, Serbia on December 18, 2014. Mihajlo Pupin Bridge is the first bridge built on the River Danube in 79 years.
Medin Halilovic | Anadolu Agency | Getty Images
A ceremony is held to open the 1,507-meter long Mihajlo Pupin Bridge spanning the River Danube between the Zemun and Borca districts of Belgrade, Serbia on December 18, 2014. Mihajlo Pupin Bridge is the first bridge built on the River Danube in 79 years.

If they heeded an old advice by Italy's Prime Minister Matteo Renzi, Europeans could have used an SMS instead of a costly summit talkfest that achieved nothing last Thursday.

Apart from agreeing to keep their Russian sanctions (a decision previously taken by their top diplomats), the European Council summit discussed an EU-wide investment program and convened to talk about it again next June. They had no idea how the program would work, and they currently have only 21 billion euros for a wish-list (yet to be presented) of projects that would require 315 billion euros. No wonder Martin Schulz, the President of the European Parliament, quipped that Europeans were tired of projects that have to be scrapped because there was no money to do them.

And while the European hand-wringing was going on in Brussels, China's Prime Minister Li Keqiang was beaming at a ribbon-cutting ceremony of a China-built and financed 1.5 kilometer bridge over the Danube in Serbia. Yes, the Chinese apparently built it on time and on the budget -- to the delight and admiration of their Serbian hosts.

A day earlier (Wednesday, December 17), China signed with Serbia and Hungary a 1.5 billion-euro project for a high-speed train connecting Belgrade and Budapest that will cut the travel time to a little more than two hours from about eight hours at the moment. That railway line will eventually be extended all the way down to the port of Pireaus, Greece -- majority-owned by China -- to complete a new "Maritime Silk Road" to Europe.

The signature of that project was part of China's third summit with 16 heads of Central and East European governments held in Belgrade, Serbia, December 16-17, 2014. And, in a stark contrast with the confusion at the EU Brussels jamboree, the European wish-list presented to Chinese investors in Belgrade was clear and precise – ranging from airports, railroads, highways, special industrial zones to Chinese participation in privatization projects.

Asia is just warming up

A number of China-sponsored infrastructure projects are currently under way in Central and Eastern Europe, but all that amounts to very little compared with vast transportation, communications and energy networks implemented and planned in Asia. High-speed trains and modern highways are being built to connect China, Russia, India, Kazakhstan, Pakistan, Thailand, Malaysia, Singapore, Myanmar, etc.

Read MoreChina wants to build the world a railway

Airports, energy pipelines, dams and power plants are also part of Asian infrastructure programs, mainly financed by China's huge financial resources, part of which will now be channeled through the 21-nation Asian Infrastructure Investment Bank (AIIB).

Of particular note is that the AIIB has been joined by India and Indonesia, the two countries actively working on their huge infrastructure requirements. Continuing its current efforts, India intends to invest $1 trillion over the next five years in roads, railroads, energy and communications. Indonesia is saving money by raising fuel prices and cutting subsidies to invest $1 billion in vitally needed irrigation systems in the course of 2015. That sprawling archipelago of more than 18 thousand islands also needs roads, ports, railroads, communications and water systems.

The AIIB's lending facilities will be a much-needed additional source of funds for India and Indonesia, because their current shortages of domestic savings amount to 2-3 percent of their respective gross domestic products (GDP).

China, however, has no such problems: With a savings rate of more than 50 percent of GDP, the country is by far the world's largest capital exporter and the prime mover of Asia's colossal infrastructure projects.

Intra-regional fund flows

With excess savings in all other major East Asian economies, there is a considerable potential to finance investments that will expand the region's prodigious growth potential.

India's former Prime Minister Manmohan Singh, a highly trained economist, used to say that Asians should be investing their savings at home (i.e., in Asia) instead of financing current account deficits in the rest of the world. That, of course, was a very pointed political statement. But the idea was also that Asian countries could find it more profitable to invest in regional growth projects than in fixed-income assets of heavily indebted countries.

China seems to have heard the message and is increasingly moving in that direction. Other Asian trade surplus countries may follow by using financial vehicles like the AIIB or other institutions focusing on regional development.

East Asia's deepening economic integration is another factor likely to favor growing intra-regional investments, especially since a rising volume of Asian trade flows is now being cleared in national currencies. China is spearheading that process in its drive to broaden the use of renminbi as an international transactions currency.

Investment thoughts

Asia's great growth stories – China, India and Indonesia – have generated equity market returns so far this year ranging from 13 percent to 40 percent (in dollar terms). Nobody (worth the comparison) says better.

Current and expected capital outlays to expand Asia's growth potential and raise the purchasing power of 4.3 billion of its people -- nearly two-thirds of humanity -- is an investment consideration that should transcend temporary interest rate differentials.

But even if you expect that funds from emerging markets will be drained by rising yields on dollar-denominated assets, you may wish to keep in mind that Asia's relatively good fundamentals will be much more resilient than those in the developing economies in other parts of the world.

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.