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East Asia is doing fine; chaos is elsewhere

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Make no mistake: Widely publicized jeremiads about emerging markets are mainly referring to East Asia's developing economies. Luckily, they are totally wrong.

None of the major East Asian emerging economies are close to negative growth. In the second quarter of this year, these economies were growing at annual rates between 2.2 percent and 5 percent. And I am not including here the small economies of Myanmar and the Philippines with stellar growth rates of 10 percent and 7.4 percent, respectively.

East Asia's trade and budget balances also look good. With the exception of Indonesia, all the emerging economies of the area are running trade surpluses ranging (at annual rates) from $8.8 billion to $104 billion. And most of them show roughly balanced public sector accounts.

What should one think then of the Washington experts' forecasts that the emerging markets will see a $540 billion net capital outflows in the course of this year?

That estimate may be true with regard to the emerging East Asian economies. But that is exactly as it should be because their total current account surplus – presently running at an annual rate of $578.6 billion – has to be offset by capital account outflows (deficits).

Read MoreWorld Bank cuts East Asia growth forecast...again

Remember, the balance-of-payments has to balance, i.e., it has to be equal to zero.

Dr. Manmohan Singh's advice

As I have written in earlier columns, East Asia is the world's largest capital exporter. With their excess savings of $578.6 billion, emerging East Asian economies are financing nearly two-thirds of an estimated global current account deficit of $948.4 billion.

That used to infuriate India's former Prime Minister (and a highly trained economist) Manmohan Singh, who was telling Asians to invest their savings in Asia, instead of piling on foreign IOUs.

In view of the evidence, Dr. Singh's call did not find a receptive audience in East Asia. Deeply traumatized by the Asian financial crisis in the late 1990s, policy makers in the region still cling to the belief that savings exports, and unnecessarily large foreign currency reserves, are symbols of economic virtue.

Like most myths in economics, this one is dying hard, too. So, let it be.

But instead of lamenting the slowing emerging market economies, the IMF, the World Bank, and perhaps also the U.S. Treasury, should invite East Asia to get off the export gravy train and use excess savings to generate more growth from domestic demand.

Can East Asia do that – safely? Of course it can.

With the exception of Indonesia (which is running high inflation, with moderate trade and budget deficits), most other developing East Asian economies have sizeable trade surpluses, balanced or easily financed public sector accounts and virtually no inflation. In fact, some of the region's economies are experiencing cases of price deflation – a clear sign that they should be stepping up their domestic demand.

Thawing Sino-Japanese ties

As China seems to have finally understood, other East Asian countries should also realize that it is in their own interest to use their savings to finance their woefully inadequate infrastructure, education and public health services, instead of financing global trade deficits.They may wish to keep in mind as well that an export-based growth strategy is a sure way of losing control of the economy. The reason is simple enough. Overseas sales depend on external demand and on world clearing prices, and neither of these variables can be controlled by any single country, no matter how big it might be.

Now, speaking of China, there is a very positive new development for growth prospects in East Asia – and beyond. After years of acrimony and military confrontations, the Chinese and Japanese businesses are coming together to exploit their prodigious production potential.

Read MoreChina's problem? It's still outperforming everyone else

In the first half of this year, Japanese direct investments in China (managed as joint-ventures with local partners) rose 7.7 percent from the year earlier to $4.7 billion. That is the first increase since the Japanese direct investments in China peaked out at $13.5 billion in 2013.

This is definitely a turning point in the two countries' economic – and political – relations. The change was confirmed last week by the Japanese Prime Minister Shinzo Abe during the UN General Assembly, where he said that "we had several summit meetings (with China) … we are continuing to develop our relations based on common strategic (sic) interests."

And strategic they are, because investments are an act of faith in the future relations of these erstwhile estranged Asian neighbors.

These rapidly growing Sino-Japanese business transactions are in sharp contrast to European (and American) complaints of an allegedly increasingly difficult operating environment in China.

Europe's eroding sales in China are a heavy blow to its already precarious economic, social and political conditions. The EU has no idea what to do with more than 23 million of its unemployed, 5 million of which are the young people in an elusive search of work and a meaningful future. And neither does Europe have any hope of stemming the tide of incoming refugees. The Europeans don't even know what to do with refugees who are now overwhelming their welfare services.

The quadrilateral summit meeting (Russia, Germany, France and Ukraine) last Friday in Paris failed to bring a credible peace and political settlement in a war-torn Ukraine. But instead of working on peace, inclusion, growth and employment, Europe is now conducting its largest military maneuvers in the last ten years, involving 36 thousand soldiers, 140 airplanes and 90 naval assets.

With its economy in shambles, spoiling for war (against who?) is the last thing Europe needs. Imagine, the Socialist government in France is exulting at a possibility of eking out a 1 percent growth this year, amid rising job losses and a growing public debt of more than 120 percent of GDP in 2014.

Germany is going through some rough patches, too. In addition to intractable problems created by uncontrollable refugee inflows, it is now estimated that the VW's global cheating on pollution tests of its diesel-powered vehicles will knock off an entire percentage point of Germany's growth. That would literally leave the country without any growth at all.

Read MoreAbe's new policy framework: More empty promises?

The Europe's stalled French-German "growth engine" is a sad picture of a continent adrift.

Maybe the Jeremiahs should spare a thought or two for the beautiful Phoenician princess (Europa) that has completely lost its way.

Investment thoughts

China's emblematic businessman Jack Ma (chairman of the e-commerce company Alibaba) was telling a Western audience in New York last week to "stop worrying about Chinese economy." The same could be said of those worrying about the developing East Asian economies. That area will soon (by the end of this year?) be opening up a tariff-free ASEAN Economic Community – a market of 625 million consumers (9 percent of world population) and a combined output of $2.6 trillion.

If the IMF, the World Bank and the U.S. Treasury want to help East Asians to achieve a stronger and a more balanced economic growth, they should urge them to use their huge savings to invest at home in much-needed infrastructure, education and public health services.

The downside to that would be that East Asians would then have less money to finance trade deficits in the rest of the world.

Investors may wish to note that East Asians have all the money they need – and all the policy space they might want to use – to prevent any major weakening of their economies in the months ahead.

Will they do that? I don't know. But if they fail to do that, they would commit unforgivable errors.

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.