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Alicia García Herrero : Capital will leave emerging developing countries

Updated: Jan 7, 2023

Alicia García Herrero, Senior Fellow at European think-tank BRUEGEL.

Alicia García Herrero is a Senior Fellow at European think-tank BRUEGEL. She is also the Chief Economist for Asia Pacific at Natixis and non-resident Research Fellow at Madrid-based political think tank Real Instituto Elcano. She is currently Adjunct Professor at the Hong Kongm University of Science and Technology and member of the advisory board of Berlin-based China think-tank MERICS. Finally, Alicia is 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.


Capital will leave emerging developing countries

1. The International Monetary Fund revised the "World Economic Outlook" on April 6, raising the economic growth forecast for 2021 to 6.0%. This seems to be a good signal for the recovery of the world economy. In the early stage of economic recovery, what areas should the government be wary of?


The recovery expected by the IMF is bound to be stronger in the US (according to NATIXIS research 6.9% in 2021) and slightly weaker in Europe in 2021 (4.1% ) but quite strong also in Europe in 2022 thanks to the recovery and resilience plan. The key question is really the emerging world, except for China. The vaccine rollout is clearly much slower in virtually all emerging and developing economies and the number of mutations are increasing. The worst case in point is obviously India. In addition to the much worse sanitary situation, most emerging/developing economies do not have any room to conduct expansionary fiscal and monetary policies. This will be even more the case if US Treasury yields continue to move up as capital may leave the emerging world.


2. The sensitivity of Sino-US relations makes any previous Sino-US joint statement of great political significance. Regarding the recent Sino-US joint statement in the field of climate cooperation, how do you think will this be a stepping stone for Sino-US cooperation?


The US is clear about where it may seek cooperation with China, basically only for public goods and not even all. Climate is a must but even for the pandemic there has been no cooperation but rather a race to produce and distribute vaccines. I don’t think cooperation is to be expected in any other area, whether it is trade, investment or technology, let alone security.

3. Recent sanctions and counter-sanctions between the EU and China have put the future of the Comprehensive Agreement on Investment (CAI) in doubt. Will the negotiation of the agreement between China and the EU be restarted?


What impact will the current shelving situation have on both sides?It seems clear that CAI will be put on ice for the time being. In addition, the EU Commission has just announced measures against foreign subsidies together with other measures to enhance the resilience of the supply chain in relevant strategic inputs, including hydrogen, pharmaceuticals, batteries, etc. Both measures are clearly targeted at China. The former mainly at Chinese SOEs buying companies in Europe or involved in EU procurement. The latter has an industrial policy objective and aims at reshoring part of the production of such strategic products back to Europe. In the same as CAI was part of the EU’s quest for strategic autonomy (versus the US), these two new measures are a quest for the EU’s strategic autonomy versus China.


4. The Regional Comprehensive Economic Partnership (RCEP) between the 10 ASEAN countries and Australia, China, Japan, South Korea, and New Zealand has only a moderate direct economic impact on the EU. However, the long-term strategic and geopolitical influence is the main influence. In the long run, what impact will the new Asian trade deal have on the EU?


RCEP is an important development towards more Asian trade integration. However, one should still consider it as one step while many other aspects of integration are not yet achieved, at least compared to CPTPP. In that regard, I think the impact on the EU is limited as the EU has FTAs with quite a few of those countries and will continue to pursue others.


Interviewer: Xu Yiding

Intervie Date:May 17, 2021

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