SINGAPORE -- China made up ground on the U.S. in IMD's latest ranking of global competitiveness, while Taiwan cracked the top 10 for the first time.
On the other hand, Singapore slipped well out of the top spot and fellow Asian finance hub Hong Kong also fell, the Swiss business school revealed on Thursday.
The annual assessment of the world's major economies put European countries on top, while Asia mostly lagged behind Western counterparts. Switzerland, Sweden, Denmark and the Netherlands took the leading four slots, while Singapore placed fifth, down from the No. 1 spot last year.
But China had the sharpest rise among East Asian economies, climbing four places to 16th -- inching closer to the U.S., which remained in 10th place, unchanged from last year.
"In 2020, all economies faced two challenges: the pandemic and the subsequent economic crisis," Jose Caballero, senior economist at the IMD World Competitiveness Center, told Nikkei Asia.
"China managed to address both of the challenges ... in a most effective way," he said. "It controlled the spread of COVID-19 and employed supportive fiscal and monetary policies, while simultaneously providing liquidity to sustain and foster further economic activity, even during the peak of the pandemic."
Hong Kong placed seventh, down from fifth, while Taiwan rose three spots to eighth -- rounding out Asia's representation in the top 10. IMD said Taiwan made "advancements in all competitiveness factors, with the largest improvement in economic performance" and a "strong rise in employment."
This edition of the IMD World Competitiveness Ranking examined 64 economies, using national statistics and a survey of executives to gauge how well they promote prosperity. IMD's indexes measure government and business efficiency, as well as infrastructure development.
Since its debut in 1989, IMD's ranking has become one of the most closely watched measures of international competitiveness.
IMD said changes in the 2021 ranking from the previous year may indicate which economies were better prepared for a global crisis. It observed that on the whole, investment in innovation, digitalization and welfare benefits -- and leadership resulting in social cohesion -- has helped economies weather the pandemic and maintain competitiveness.
Singapore has performed well in terms of protecting public health, with the exception of serious coronavirus outbreaks in migrant worker dormitories. It has recorded just 34 deaths from COVID-19. Nevertheless, IMD noted the pandemic has hit the trade- and travel-dependent city-state, which has grappled with job losses and a lack of productivity.
Like others that fell in the ranking, Singapore suffered an economic slowdown and an increase in the budget deficit and public debt, IMD said.
As for Hong Kong, the Chinese-ruled city had ranked second as recently as 2019. But it tumbled down the list last year, amid fears over Beijing's tightening control and an economic slump. IMD said Hong Kong's drop this year was mainly due to declines in international investment and prices, as well as a sharp deterioration in employment conditions.
These patterns, however, do not mean the two Asian financial hubs are "fading," Caballero stressed. "Despite this year's fluctuation, [Singapore and Hong Kong] remain in the top 10 of our ranking."
Taiwan's strong performance comes as its economy surges on the back of its chip sector, fueled by brisk global demand for electronics. IMD's survey of executives found high appreciation for the island's economic "dynamism," skilled workforce, "open and positive attitudes" and quality corporate governance. Taiwan went through most of the pandemic virtually unscathed until a serious outbreak in May.
Interpreting Europe's grip on the top spots, Caballero said: "Although Western economies were not as successful in tackling the pandemic during its early stages as some of their Asian counterparts did, they were able to support their economic activity with appropriate policies and provision of liquidity."
In Switzerland, he said, such supportive policies contributed to sustaining strong levels of employment, labor force motivation and productivity. "Those policies, in short, greatly contributed to high levels of international trade and investment, and a robust overall economic performance."
Elsewhere in Asia, the Philippines suffered the steepest plunge of any economy in the region, sliding seven places to 52nd. This was "driven by a deterioration in several indicators" including the job market, public finances and private-sector productivity, IMD said, noting a doubling of the unemployment rate to more than 10%.
Some other Southeast Asian economies made modest gains. Malaysia rose two spots to 25th, thanks partly to "improvements in the business efficiency of its private sector." Thailand climbed one rung, to 28th, due to improvements in certain labor market indicators, business legislation and scientific infrastructure. Indonesia jumped three spots, to 37th, also attributed to legislative changes and higher confidence among executives.
Meanwhile, although IMD's results underscore China's ascent, a separate report this week highlighted the risk that weak domestic demand poses for the country.
The "household consumption recovery remains fragile," wrote Tommy Wu, an economist at Oxford Economics. "The recent COVID outbreak in Guangdong is also weighing on [the] near-term consumption outlook," Wu added, noting the cluster of cases that prompted renewed restrictions.
"We think that prolonged domestic weakness could create a policy dilemma whereby a more pro-growth macro policy would be needed, which could increase financial risks and leverage rather than contain them," he wrote.