Pathfinder Foundation

At a Hybrid meeting hosted by the Pathfinder Foundation, Dr. Liu Zongyi, Senior Fellow & Director, Center for South Asia Studies at the Shanghai Institutes for International Studies (SIIS), elaborated on China’s response to evolving economic policies amidst global uncertainty and its implications for South Asia and beyond. 

In his presentation, Dr. Liu at the join from the Pathfinder Foundation Headquarters at Peliyagoda and live conference open for the public via webinar link, focused on the major challenges facing the global economy and their root causes, citing geopolitical risks, the fragility of global financial markets, sovereign debt pressures, climate change and environmental issues, as well as structural challenges. Regarding geopolitical risks, he mentioned that persistent regional conflicts, such as the Russia-Ukraine war, have severely disrupted the supply and price stability of critical global commodities, including energy and food. Additionally, the resurgence of trade protectionism, exemplified by the Trump administration’s high tariffs against China and other nations, has undermined the normal functioning of global industrial and supply chains. He further noted that heightened strategic competition and friction among major powers have exacerbated uncertainties in the global economy.

Regarding the fragility of global financial markets, the speaker highlighted banking crises in the U.S. and Europe, characterised by plunging bank stock prices, inverted bond yield curves, and weakened investor confidence. He noted that weak financial regulation and insufficient oversight of institutional risk management have amplified these vulnerabilities, increasing the likelihood of financial risk accumulation and crises. Additionally, expanding debt burdens, soaring debt servicing costs, and heightened default risks in developing and emerging economies threaten global financial stability; if these issues are left unresolved, they could further destabilise global financial markets and impede worldwide economic recovery, the speaker pointed out.

As for the measures and policies adopted by the Chinese government in responding to global economic challenges, Dr. Liu highlighted specific measures including proactive fiscal policy and prudent monetary policy; expanding domestic demand; tariff countermeasures and trade diversification; industrial upgrading and technological innovation; deepening supply-side structural reforms; and strengthening international cooperation and multilateral trade.

Regarding the recently imposed tariffs by the Trump administration, the speaker expressed the view that the U.S. operates under a flawed assumption of being the indispensable core of the global economic system, which he claims has become profoundly disconnected from today’s interdependent trade landscape. The current global economy has evolved into a multipolar structure, with various trade power centres distributed worldwide, including China, the European Union (EU), ASEAN, and the Gulf Cooperation Council (GCC). The hub-and-spoke system” mindset that once dominated U.S. negotiating strategies, he said, has now been eclipsed by a decentralised new order.

In conclusion, as lessons for developing nations, Dr. Liu declared that developing countries should steadfastly support multilateralism and strengthen trade and investment cooperation with other nations. On this note, he said that China supports Sri Lanka’s application to join RCEP. He stated that developing nations should diversify their economies by building multi-sector industrial systems that encompass both manufacturing and services, thereby improving economic stability and resilience to risk. Cultivating domestic consumer markets, strengthening capacity building to provide robust human capital for economic growth, enhancing infrastructure development, improving the investment climate, and enhancing governance capabilities to create a sustainable foundation for development are critical factors in facing global economic challenges, the speaker noted.