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1. India-China rapprochement: what are the long-term prospects?

Author:
Nayanima Basu and Alicia Garcia-Herrero
Publication Date:
05-2025
Content Type:
Working Paper
Institution:
Bruegel
Abstract:
China-India relations, which have long been fraught, were further complicated by the 2020 military standoff on the Himalayan border. The political disruption had a significant impact on Chinese companies’ presence in India. And yet, India’s dependence on Chinese imports has increased since. The Indian economy is decelerating at a challenging time for Prime Minister Modi, who governs in a coalition. China could offer a partial solution to India’s economic woes by providing manufacturing FDI and creating jobs. The Modi-Xi ‘rapprochement’ after their encounter at the October 2024 BRICS summit signals that relations could improve. India may be willing to accept targeted investment from China, but relations are unlikely to fully normalise, particularly since the 2025 India-Pakistan military stand-off. There are three main reasons for this. First, the Indian army remains cautious about the situation at the border and security risks relating to China. Second, the United States under President Trump will exert pressure on Modi not to depend further on China. This is even more relevant in the context of Trump’s threat to impose tariffs on India. Third, Indian public opinion on China and the Belt and Road Initiative remains negative. India is predicted to experience greater growth than China in the coming decades, meaning China could lose its upper hand in economic relations between the two countries. This, however, will depend on how dependent India might have become on China for imports or for jobs through FDI and other channels. The militarised border, India’s asymmetric economic dependence on China and China’s leadership in the Global South will still shape the relationship even if the Indian economy grows to a similar size to China’s. India-China ‘rapprochement’ is possible but will remain fragile and unlikely to be maintained in the long run.
Topic:
Bilateral Relations, Governance, Economy, Economic Growth, Investment, and Trade
Political Geography:
China, India, and Asia

2. Will China’s economy follow the same path as Japan’s?

Author:
Alicia Garcia-Herrero and Jianwei Xu
Publication Date:
02-2025
Content Type:
Policy Brief
Institution:
Bruegel
Abstract:
Since the bursting of China’s real-estate bubble in mid-2021, there has been a growing concern that the Chinese economy could end up like that of Japan in the early 1990s. Some structural patterns are strikingly similar: low private consumption over a long period, especially when compared to the rest of the world, and an excessively high savings ratio, though China’s imbalances now are even larger that Japan’s were then. Initial policy responses to the bursting of their respective bubbles have also been similar. Both China now and Japan then were initially hesitant to ease monetary and fiscal policies, and opted to expand manufacturing, with an eye on external demand, supported by more research and development expenditure. In both cases, the outcomes were stubborn trade surpluses and a mercantilist attitude to their growth problems, leading to the United States taking protectionist measures. China also seems to be following Japan’s offshoring of production to mitigate the impact of protectionism. The main difference, though, is that China now is a poorer country than Japan was then, with still more convergence opportunities ahead. China is also a much bigger military and geopolitical contender than Japan ever was. China’s geopolitical weight is behind the US technological containment of China, but also gives China more room for manoeuvre globally, especially in the Global South. It remains unclear – though globally significant – whether China will be able to deviate from the path followed by Japan in the 1980s and 1990s.
Topic:
Industrial Policy, Geopolitics, Economy, Economic Growth, Innovation, and Real Estate
Political Geography:
Japan, China, and Asia

3. Lessons from China's fiscal policy during the COVID-19 pandemic

Author:
Tianlei Huang
Publication Date:
03-2024
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics (PIIE)
Abstract:
Expansionary fiscal policy helped China's economy grow in 2020, a year in which most economies contracted because of the COVID-19 pandemic. Amid a broader pivot to policy and regulatory tightening, fiscal support was withdrawn in 2021. In 2022, government budget turned expansionary to ensure economic stability ahead of the Communist Party Congress, but the execution fell short and fiscal policy ended up being weaker than planned. A recurrent problem during the pandemic, however, was that local governments did not fully spend their budgets. Aside from the sharp drop in local governments' land sale revenue in 2022, which dragged down their spending, it was also caused by local governments' failure to fully utilize their special bond quotas approved by the central government for capital investment. China's fiscal policy during the COVID-19 pandemic highlights four issues with implications for fiscal policy making. First, the government needs to avoid projecting unrealistically high land sale revenue in its budgets. Second, it needs to reconsider its problematic use of local-government special bond as a major fiscal stimulus instrument. Third, it needs to make sure its deficit, growth, and inflation targets are consistent. Last, Beijing needs to be more tolerant of higher fiscal deficits, at a minimum ensuring that overall fiscal spending grows at least as rapidly as nominal output.
Topic:
Budget, Economic Growth, Fiscal Policy, COVID-19, and Fiscal Deficit
Political Geography:
China and Asia

4. Geoeconomic fragmentation and net-zero targets

Author:
Shirin Hakim and Amin Mohseni-Cheraghlou
Publication Date:
04-2024
Content Type:
Policy Brief
Institution:
Atlantic Council
Abstract:
The second half of the twentieth century experienced significant economic integration. International trade, cross-border migration, capital flows, and technological diffusion increased per capita incomes across countries and reduced global poverty. However, events such as the global financial crisis of 2007 to 2009, Brexit, and the COVID-19 pandemic—all against the backdrop of escalating great power rivalry and tensions between the United States and China—have demonstrated the rise of geoeconomic fragmentation (GEF). Since the 2022 Russian invasion of Ukraine, a growing numberof world leaders have addressed the impacts of GEF on global energy and agricultural markets. For one, higher and increasingly volatile food and energy prices have made it increasingly difficult for developing nations to prioritize environmental concerns and implement sustainable development initiatives.
Topic:
Climate Change, Environment, International Trade and Finance, Economy, Economic Growth, Inclusion, Energy, Geoeconomics, and Net Zero
Political Geography:
China, Asia, and United States of America

5. Xi Jinping’s Quantitative Easing Unlikely to Save Economy

Author:
Willy Wo-Lap Lam
Publication Date:
10-2024
Content Type:
Journal Article
Journal:
China Brief
Institution:
The Jamestown Foundation
Abstract:
In an apparent U-turn, the People’s Republic of China (PRC) has initiated stimulus policies that have boosted the stock market and are attempting to jump-start key sectors and meet the annual GDP growth target of 5 percent. In the last week of September, the central bank announced a package worth at least 2 trillion Renminbi (RMB; $280 billion), cut the banks’ reserve requirement ratio by 50 basis points, and hinted at further measures. The domestic and international response has been underwhelming, in part because the package leaves the economy even more overleveraged than before. President Xi Jinping’s attempts to enhance the PRC’s global stature, including through a recent ICBM test and by deepening support for Russia’s war in Ukraine and for other countries willing to denounce the United States and the West, will not help the domestic economic woes as they discourage foreign investment.
Topic:
Monetary Policy, Economy, Economic Growth, Investment, and Quantitative Easing
Political Geography:
China and Asia

6. How China’s Human Capital Impacts Its National Competitiveness

Author:
Briana Boland, Kevin Dong, Jude Blanchette, Ryan Hass, and Erica Ye
Publication Date:
06-2024
Content Type:
Policy Brief
Institution:
Center for Strategic and International Studies (CSIS)
Abstract:
How will the strengths and weaknesses of China’s human capital impact national competitiveness? China’s efforts to maintain economic growth, strengthen supply chains, develop strategic science, technology, engineering, and mathematics (STEM) sectors, and secure a modern military edge hinges on the ability to cultivate and utilize human capital. As the United States and other countries increasingly engage in multidomain competition with China, it is critical to start from a clear-eyed understanding of China’s human capital and Beijing’s strategy for nurturing national talent. Investments in higher education, strategic STEM sectors, and military talent demonstrate key areas in which Beijing is focusing on cultivating human capital. However, China must overcome significant obstacles to innovate as it faces substantial demographic pressures, socio-economic inequalities, and challenges to attracting and retaining top talent both domestically and internationally.
Topic:
Economic Growth, Human Capital, Supply Chains, and Competition
Political Geography:
China, Asia, and United States of America

7. China’s quest for innovation: progress and bottlenecks

Author:
Alicia Garcia-Herrero and Robin Schindowski
Publication Date:
06-2023
Content Type:
Working Paper
Institution:
Bruegel
Abstract:
As the Chinese economy continues to decelerate, the central government is investing heavily in innovation, doubling down on research and development (R&D) spending and STEM-oriented human capital. In this paper, we assess China’s progress so far, looking at the inputs to innovation (R&D and human capital) as well as intermediate targets, such as scientific research and patents. We then evaluate how China has fared with respect to the ultimate goal of commercialising this progress, by looking at the value-added of Chinese exports and the overall productivity of the economy. We identify three potential bottlenecks that might be hindering the translation of China’s innovation efforts into productivity growth.
Topic:
Industrial Policy, European Union, Economic Growth, Innovation, and COVID-19
Political Geography:
China, Europe, and Asia

8. Can Chinese growth defy gravity?

Author:
Alicia Garcia-Herrero
Publication Date:
06-2023
Content Type:
Policy Brief
Institution:
Bruegel
Abstract:
Chinese growth, astounding since the beginning of the reform era, has slowed in the last decade. We offer a baseline estimate (based on the current trend) of China’s medium-term growth rate, which we project to fall to 2.4 percent by 2035. Several factors create uncertainty around this baseline. China’s rapid aging is already incorporated into our long-term growth scenario, but its impact on growth will depend on how China’s remaining urbanisation process spreads over time, how the shrinking labour supply affects labour productivity and whether the decline in total factor productivity growth, reflecting the lack of reform during the last decade and possibly the rising role of the state, can be reversed. Investment in China, for decades the largest factor in China’s growth, is expected to contribute less to growth given the increasingly low return on assets, particularly on state-led investment. The rapid piling up of public debt is also becoming a heavy burden for the Chinese economy. Finally, the COVID-19 pandemic may have left significant scarring effects, such as structurally high youth unemployment and low investment confidence. On the upside for China, the rise in human capital and research and development expenditure may support innovation and growth, but the magnitude of this effect is uncertain, because it is unclear if higher innovation will translate into higher total factor productivity, and because of the United States’s push to contain China technologically.
Topic:
Industrial Policy, European Union, Economic Growth, and COVID-19
Political Geography:
China, Europe, and Asia

9. China Strengthens Regional Leadership Countering US Challenges

Author:
Robert G. Sutter and Chin-Hao Huang
Publication Date:
05-2023
Content Type:
Journal Article
Journal:
Comparative Connections
Institution:
Pacific Forum
Abstract:
Southeast Asia featured prominently in Beijing’s increasingly strong international efforts to portray China as a source of strategic stability and economic growth with comprehensive global governance plans supportive of interests of developing countries and opposing the United States. These efforts intensified after the landmark 20th Party Congress in October and the 14th National People’s Congress in March. They were reinforced as Xi Jinping emerged from COVID restrictions and preoccupation with domestic matters to engage actively in summitry with leaders of Vietnam, Laos, the Philippines, Cambodia, Malaysia, and Singapore. China’s economic importance for regional countries grew as did its dominance over the contested South China Sea. Its show of force against Taiwan in April had little discernible impact on China-Southeast Asia relations, while notable US advances in military cooperation with the Philippines warranted Chinese warnings that escalated during the reporting period.
Topic:
Bilateral Relations, Leadership, Economic Growth, Strategic Stability, and Regional Politics
Political Geography:
China, Asia, and Southeast Asia

10. Balancing Natural Resources and Human and Social Capital: Pathways to Economic Diversification in Mongolia

Author:
Thorvaldur Gylfason and Jean-Pascal N. Nganou
Publication Date:
09-2023
Content Type:
Special Report
Institution:
The Vienna Institute for International Economic Studies (WIIW)
Abstract:
Economic diversification has gained significant attention as a crucial factor for sustainable development worldwide. This paper addresses the risks associated with extreme specialisation and explores the potential benefits of economic diversification for Mongolia. By comparing Mongolia with its designated aspirational and structural peers, the paper aims to shed light on strategies that can foster economic and societal diversification in the country. Although Mongolia possesses favourable levels of human capital compared with its peers, its unusually high ratio of natural capital to human capital highlights the necessity of reducing reliance on natural resources and promoting human capital-intensive economic activities. The paper examines the implications of declining demand for Mongolia's key minerals, primarily coal, resulting from climate change concerns and evolving investor preferences towards sustainability, China's coal consumption reduction goals, and the enduring impact of the COVID-19 pandemic. Through this analysis, the paper offers insights into pathways for Mongolia to diversify its economy and enhance the well-being of its people by striking a balance between natural resources and human and social capital.
Topic:
Natural Resources, Governance, Democracy, Economic Growth, Human Capital, Diversification, Macroeconomics, Social Capital, Transition, and ASEAN
Political Geography:
Russia, China, Malaysia, Canada, Mongolia, Kazakhstan, Colombia, Armenia, Australia, Qatar, Chile, Peru, United Arab Emirates, Ecuador, and Guyana