At the end of 2020, as most of the world continued to combat massive surges of COVID-19 infection, many of the Asian countries that had first dealt with the pandemic, like the People’s Republic of China, seemed to have successfully contained infections and returned to past trends of growth and productivity. This gave rise to the idea of “first in, first out” for global economies: the first economies to have been impacted by COVID would be the first to return to normal activity. On February 1st, 2021, SAIS Europe director Michael Plummer invited Alicia Garcia-Herrero –– to assess these claims and speak to the future of Chinese economic growth.

Garcia-Herrero began by highlighting that the region’s response, though robust, has far from rid it of COVID altogether. Many Asian countries have, like in Europe, continued to deal with virus flareups and delays to vaccine distribution – in fact, these delays have been severe enough to deter some countries, including China, from announcing concrete vaccination plans altogether. Combined with a population that, due to a robust initial response to the pandemic, has had far less immunity-building exposure to the virus than other regions, these vaccine troubles have solidified COVID as a consistent regional threat well through 2021.

Garcia-Herrero also assessed COVID’s impact on China’s short-term economic growth in particular. Although one of the few economies demonstrating positive growth at this point in time, Chinese economic recovery has been slower than projected, due to weakened consumption (particularly of services like tourism, which continue to be threatened by potential lockdowns), income, and domestic investments. Much of the present recovery has instead been driven by exports to Europe, which had ballooned since the start of the US-China trade war and may not be sustainable. Similarly, investment growth has largely come from new overseas investments, attracted by comparatively high interest rates – however, this investment has not extended to domestic businesses, which have experienced a wave of defaults and bankruptcies even among state-owned enterprises.

Lastly, Garcia-Herrero examined the larger structural challenges to China’s long-term growth – namely, an aging population and diminishing marginal productivity of labor and investment. Over the past few decades, the Chinese economy has completed the bulk of its developmental catch-up, and current areas of development (like digital infrastructure) are less impactful than the factories, utilities, and roads of yesteryear. As growth of productivity slows, and China’s economy fully completes its development, it will be harder to continue organically meeting the state’s ambitious economic goals for 2035 and beyond – requiring levels of innovation that no amount of government investment has seemed to yield (and, she posited, that China’s systems of economic governance may not be effectively structured to yield) thus far.

Garcia-Herrero concluded by provided her insights on audience questions, ranging from lending under the Belt and Road Initiative (very unlikely to expand) to China’s potential involvement in the CPTPP (fundamentally possible especially as a tool to pressure the US).

Ultimately, Garcia-Herrero added nuance to the simplistic vision of “first in, first out.” While China’s early response to the pandemic, like that of many Asian countries, has prepared it for early economic recovery relative to the rest of the world, but that recovery is neither totally unthreatened by COVID nor a change to the fundamental challenges China’s economic growth faces for the next fifteen years.

Full Audio:

International Economics Series

hosted by Professor Michael G. Plummer


Alicia García Herrero will discuss the following issues:
1. China has been the first in and the first out in terms of the economic impact of the pandemic.
2. The fast recovery, however, masks some important risks for 2021.
3. Regarding the medium term, China's structural deceleration is bound to continue notwithstanding China's innovation efforts.

ALICIA GARCÍA HERRERO

Alicia García Herrero is the Chief Economist for Asia Pacific at Natixis. She is also a Senior Fellow at the European think-tank BRUEGEL and non-resident Research Fellow at the Madrid-based political think-tank Real Instituto Elcano. She is currently Adjunct Professor at the Hong Kong University of Science and Technology and member of the advisory board of the Berlin-based China think-tank MERICS. García Herrero is also advisor to the Hong Kong Monetary Authority's research arm (HKIMR) and the Asian Development Bank (ADB) as well as a member of the board of the Hong Kong Forum and co-founder of Bright Hong Kong.

In previous years, she held the following positions: Chief Economist for Emerging Markets at Banco Bilbao Vizcaya Argentaria (BBVA), Member of the Asian Research Program at the Bank of International Settlements (BIS), Head of the International Economy Division of the Bank of Spain, Member of the Counsel to the Executive Board of the European Central Bank, Head of Emerging Economies at the Research Department at Banco Santander, and Economist at the International Monetary Fund. García Herrero has always combined her professional career with academia, having served as visiting Professor for Johns Hopkins University, China Europe International Business School (CEIBS) in Shanghai, and Carlos III University in Madrid.

García Herrero holds a PhD in Economics from George Washington University and has published extensively in refereed journals and books. She is also very active in international media (Bloomberg and CNBC among others)and social media (Twitter, LinkedIn and Weibo). In recognition of her leadership thoughts, she has recently been nominated TOP Voices in Economy and Finance by LinkedIn.