Analysing the challenges facing China’s economy

China’s economy is unique in multiple respects. And its economic growth presents a conundrum. 

Arguably, the biggest structural anomaly with the Chinese economy is its ultra-low consumption share compared to any other country. The other side of this is the very high investment share. 

Ken Rogoff has this anecdotal measure of the investment-driven growth reliance.

China has built more square metres of residential property per capita than either the United Kingdom or France, despite still being a much poorer country. Its road and railway networks are on par with those of the world’s most advanced economies and, in many ways, far superior to America’s.

But this investment-based growth is a diminishing returns story and finds its limits. This is clearly reflected in its declining contribution to the GDP growth. Not only is the investment rate itself declining, but its incremental impact on output growth is falling too. 

Fixed asset investment declined 7.2 per cent year on year in the first nine months of 2026. Assuming fixed investment at 40% of GDP, this means that the rest of the economy must grow at 3 percentage points more just to prevent contraction. Even the traditional workhorses, like infrastructure investment, are declining.

The new driver of growth is exports, where the trade surplus hit $1.2 trillion in 2025. Net exports supplied a staggering 32.7% of 2025 growth (it was 30% in 2024), and the value-added embodied in exports is ~17–18% of GDP and underpins tens of millions of jobs. More on this latter. 

The declining investment contribution to GDP growth also points to less and less efficiency in capital utilisation. This is captured in the incremental capital-output ratio (ICOR), what a unit of investment buys in terms of GDP growth. The ICOR has more than doubled since the 2000s. China is now roughly twice (or thrice if independent estimates are taken) as capital-hungry as Korea or Taiwan at the same stage, or as India today.

This investment is increasingly being funded by debt. The total social financing (TSF) has reached 315% of GDP. And this debt sits overwhelmingly in corporates, state firms, and local-government vehicles, hitherto the drivers of investment and growth. 

The public debt is much higher if the off-balance sheet vehicles of the local governments are added. A new study from the Conference Board says that debt servicing payments alone are expected to account for 19.2% of the central government’s general public budget this year, up from 12% in 2014. Local government debt interest payments have risen 16% annually over the same period. Morgan Stanley estimates the public debt-to-GDP ratio to hit 122% by the end of 2026.

To put this debt accumulation in a global perspective, China now accounts for more than half the rise in the world’s debt-to-GDP ratio since 2008. 

The danger is that once it reaches these levels, each incremental unit of credit buys less and less. Unsurprisingly, in 2025, one yuan of GDP required ¥6 of credit, as credit growth was double the nominal GDP growth rate. New lending increasingly refinances old liabilities rather than funding new output. Local-government vehicles alone owe ¥60tn (48% of GDP), much of it against land whose value has fallen. The credit boom's real legacy is a banking system propping up unproductive firms.

All this cascades into output growth trends. 

The government has targeted the 2026-27 growth target at 4.5-5%, and the official estimates indicate that the economy grew 4.5% in the third quarter of 2026 and 4.6% for the first nine months. But several independent reconstructions put China’s true 2025 growth at roughly half the official figure.

One estimate is this.

Capital Economics estimates that growth in China in the third quarter was 2%, dragged down by declining industrial activity, particularly in construction and petrochemicals. Its model draws on hundreds of lower-profile official data series, like intercity passenger traffic and industrial electricity consumption, which the firm says makes them less susceptible to manipulation.

Another puts it lower still.

Rhodium Group estimates that full-year GDP will be around 0% in 2026, arguing that it is impossible for China to hit 4.5% growth with sluggish retail sales growth and steep drops in fixed-asset investment.

On NBS accounting, net exports added about 1.5–1.6 points to growth in 2024 and 2025. But that is inflated by collapsing imports. If we strip that out, the genuine external contribution is between a fifth and a quarter. Either way, remove net exports and domestic-demand growth falls to 3.4–4.0% on official data, and to 1–1.8% on independently-estimated growth.

But this reliance on exports is a big vulnerability, given the rising backlash against cheap Chinese imports destroying manufacturing bases in both developed and developing countries, and the protectionist barriers that are being erected by them. It is safe to say that the export markets will be squeezed in the immediate future. 

Besides, the race to capture export markets has also spawned an unhealthy race to the bottom among companies, also spurred by equally intense competition among local governments. 

The electric vehicle (EV) market is emblematic of this trend, with local governments pouring billions into creating local champions, resulting in a staggering 143 EV brands selling at least one model at the end of 2025. Since factory closures mean job losses and admission of failure, besides also impacting the promotion prospects of senior city leaders, cities are reluctant to pull the plug and continue to support them. Exports have emerged as a convenient outlet to channel the excess capacity, and production has continued to rise. Exports are expected to touch 12 million units of passenger vehicles, up from less than a million units at the turn of the decade, thereby overtaking Japan as the world’s biggest auto exporter. 

However, the intensity of the competition has meant that even as Chinese EVs are capturing the global market, their EV companies are struggling to remain profitable. As an example, NIO, one of the leaders, has been losing more than a billion dollars each year since 2021, and its share price has fallen by 95%. In the first eight months of this year, the industry’s profit margin fell to a multiyear low of 3.6%, as companies compete in a pricing race to the bottom. Chinese officials call this price competition neijuan or involution. 

Worse still, globally, the cut-throat pricing has also forced price reductions by Western car makers, thereby triggering a race to the bottom globally in the industry. For example, BYD is selling its flagship Seal hybrid sedan for the equivalent of around $44,000 in the UK, more than $10,000 less than a similarly equipped Volkswagen Passat. 

On the one hand, there is the weakening consumer demand, which has resulted in 22% decline in the domestic sales of passenger vehicles in September (compared to the same period last year), and sales for the full year are estimated to reach only 18.5 million units, the worst performance since 2014. This must be seen against the backdrop of an annual production capacity of around 63 million light vehicles, more than triple the number of cars expected to be sold in the domestic market. 

So what does all this portend for China’s future?

China is facing a prolonged real estate slump, dismal consumer expectations, falling retail sales (and that too in a country with private consumption at two-thirds of peers), declining fixed investment, and struggling corporate profitability (due to intense competition). 

A recent FT essay argued that the combination of persistent deflation, weakening economy, dismal consumer sentiments, rising public and private debt, and ageing population means that China is facing its Japanification. 

According to Goldman Sachs, an updated version of the Japanisation index — a gauge originally devised by the late economist Takatoshi Ito — shows that for the past five years, China has been consistently more “Japanised” than Japan itself… Japan’s population started to shrink in 2009; China’s decline began in 2022 and is on track to be steeper, worsening the country’s economic prospects... In another echo of Japan’s post 1990s-slump, the IMF warned last week of growing numbers of “zombie” companies across Asia, kept alive only by lenient banks. This is now evident across China’s heavily subsidised manufacturing economy. Outside favoured sectors, companies are increasingly refusing to invest while households hoard cash instead of spending... Consumers are deleveraging, with bank lending to households as of August this year declining outright for the first time in history... China’s weakening economic conditions meant that up to 10.6 per cent of the adult population had overdue loans last year, compared with about 7.8 per cent a year earlier, according to a report by Gavekal Dragonomics analyst Xiaoxi Zhang...

Phrases coined in 1990s Japan, such as “job hunting ice age” and “price destruction”, are creeping into China’s vernacular... economists can see the signals of Japanification in the data... Restaurants across China are competing to offer meals for under Rmb10 ($1.50). This too is redolent of Japan, where restaurants entered a margin-crushing price war to attract an ever-shrinking pool of consumer spending as deflation took hold. The price of a basic bowl of rice and beef at the nation’s leading gyudon chain hit a high of ¥400 ($2.50 at current exchange rates) at the end of 1990 before falling. It only reached ¥400 again in 2021... The “expectation channel”, where households and businesses saw no prospect of longer-term growth, created a vicious circle of reduced consumption and investment in Japan which in turn lowered expectations...

China’s real estate bubble was the largest in history, outpacing even Japan’s speculative frenzy of the late 1980s and at its peak accounting for a third of the country’s economy. The contraction since it burst in 2021 has been dramatic, with new housing starts down 78 per cent from their peak, according to Macquarie. That compares with a 73 per cent fall in the US between 2005 and 2009 and Japan’s 65 per cent drop between 1996 and 2025. The collapse of the property market has set off what Richard Koo, the Nomura Research Institute’s chief economist, calls a “balance sheet recession” — a term he originally coined in the 1990s to describe the tendency of Japanese companies and individuals to pay down debt rather than borrow to invest or spend. Weaker demand and deflation then worsen the debt burden, leading to a vicious cycle. Investment opportunities decline, the labour market calcifies and salaries stagnate... The ultimate sign of China’s weak credit demand is the 1.7 per cent yield on 10-year government bonds, which Nomura’s Koo describes as “absolutely ridiculous”...

One reason for Beijing’s reluctance to resort to domestic stimulus, economists believe, is China’s strong export performance. The trade surplus hit $1.2tn last year — the biggest recorded by any country, ever — and may meet or exceed that level this year. Policymakers in Beijing think the country’s export performance will buy China time while it waits for the property market to stabilise. In the meantime, they are pursuing investment in areas such as chipmaking and AI as the country competes with the US for geopolitical dominance... Gross fixed capital formation — the acquisition of assets for the production of goods and services — was 40 per cent of GDP in 2024 against Japan’s 28 per cent and the OECD average of 22 per cent, fuelled by an augmented fiscal deficit that Goldman Sachs forecasts will hit 11 per cent of GDP this year. No one knows when this debt will become unsustainable.

Michael Nicoletos has an excellent post whose conclusion is worth reproducing.

Household debt is rising, defaults are accelerating, the population is shrinking and aging, and precautionary savings behavior suggests Chinese citizens understand their economy better than policymakers do. The question is not whether China can rebalance. Structurally, it can, if it allows wealth redistribution to work, implements genuine pension reform, and expands healthcare spending. The question is whether it will. Current policy signals suggest the answer is no.

Until that changes, China will remain trapped in the same pattern: high investment, low consumption, rising debt, shrinking population, slowing growth, and increasing vulnerability to external pressure on its export lifeline… The demographic projections make this even more dire. A country that is losing 3 million people per year now will be losing 14 million per year by 2062. A workforce that shrinks by 225 million cannot sustain the growth rates Beijing demands. An aging population that nearly doubles its dependency ratio cannot suddenly transform into a consumption-driven economy… 

The Chinese government will have a tough time boosting domestic consumption. Consider what it is up against: households that are over-indebted, scared, and saving at record rates; a population set to shrink by up to 280 million by 2050 and potentially by half by 2100; a dependency ratio that will nearly double, leaving just 1.2 workers to support each retiree; an export machine that relies on rerouting through third countries to avoid tariffs, with that loophole closing; and an energy import bill exceeding $450 billion a year, payable in foreign currency… Demographics make this worse, not better. You cannot boost consumption when your population is shrinking and aging. You cannot grow your way out of debt when your labor force is declining by 225 million workers. You cannot fund pensions and healthcare when the worker-to-retiree ratio collapses from 4:1 to 1.2:1.

All this means that catching up with the US GDP will most likely remain elusive, unless the US GDP itself starts falling. Even escaping the middle-income trap may become a challenge. 

China’s investment-led growth model started with the likes of textiles and footwear, and gradually moved up into more sophisticated products like consumer durables, heavy equipment, renewables, transportation, and now technology goods. Heavy doses of financial repression, massive subsidies, and real estate revenues financed this model. The prolonged real estate market downturn has seriously strained the model and now threatens to upend it. 

In conclusion, it is hard not to argue that any economy which has seen over ten quarters of deflation, an enduring property bust (housing starts down 78% from peak), total debt past 300% of GDP, a population shrinking ~3mn/year, and ageing toward 1.2 workers per retiree, is facing a reckoning. Each raises the ICOR further and shrinks the base that services the debt. The investment led growth model has run its course. Goldman’s Japanisation index already reads China as more “Japanised” than Japan. The export surplus is merely buying time and kicking the can down the road. Even that, too, is already getting squeezed. Factory closures and job losses are not far away. When that starts to happen in a meaningful manner, the tenuous contract between the Party and the citizens will be strained. It remains to be seen how China will navigate this inflection point. In the circumstances, Carl Minzner points to a long twilight.

Weekend reading links

1. Mint's N Madhavan discovers Kerala's national highways paradox.

The state boasts an extensive network of 11 national highways and 83 state highways. Yet, on the ground, these vital arteries remain choked, narrow two-lane bottlenecks. Traversing the 650-km expanse of National Highway 66 takes an agonizing 14 to 16 hours—double the time required to cover a similar distance between Delhi and Prayagraj in Uttar Pradesh. While the rest of the country races ahead with multi-lane, access-controlled expressways, Keralam is only now pushing through its first six-lane upgrade along National Highway 66—a delayed ₹66,000-crore project that experts note is arriving very late... To test the state of Keralam’s road connectivity and infrastructure—critical for the growth and investment it seeks—I decide to drive from Vizhinjam, near the southern tip, to the state’s border with Karnataka in the north. The distance of 769 km will take 21 gruelling hours. The average speed across the entire journey? A sluggish 33 km per hour.

2. Kerala takes to an ageing society with innovative policy responses like day care cenres and timebanks to address problems of loneliness among the elderly.  

Started in 2021, the Kunduparambu Pakalveedu was the first daycare centre for senior citizens set up by the Kozhikode Corporation. In 2025, it won the best ‘Pakalveedu’ award among the 150 that are operational in Keralam today... Fun trips are arranged periodically... The seven fully funded Pakalveedu facilities the Kozhikode Corporation runs are just one part of its efforts in elderly care. The corporation spends 10% of its ₹132 crore annual outlay on the welfare of senior citizens, who account for 17% of the city’s population... According to a study jointly conducted by the Population Foundation of India (PFI) and International Institute of Migration and Development (IIMD) in 2025, 18.6% of Keralam’s population is today aged 60 years and above as against the India average of 10.8%... By 2051, almost one in three people in Keralam will be a senior citizen. The PFI-IIMD study puts the number at 30.6%. In comparison, the India average will be 20.4%.

The state has steadily strengthened its social safety net for the elderly. The previous Left Democratic Front government pioneered an ‘elderly budget’ to track interdepartmental spending and established a quasi-judicial elderly commission to safeguard senior rights. Backing these policies with substantial resources, the state ramped up its commitment in the 2026–27 budget, allocating 19% of its total outlay exclusively to senior citizens. The new United Democratic Front (UDF) government led by Satheesan is formulating policies to take these efforts forward. It has set up a separate department for elderly welfare... The new Keralam government has adopted an ‘aging in place’ model that allows elderly citizens to live in their neighborhood and social environment rather than shift to an institutional facility or an oldage home. It is the Japanese model and Keralam is studying it closely...

Keralam is just 1.5 children per woman, as against the replacement level (the average number of children per woman needed for a population to replace itself from one generation to the next) of 2.1 children. Life expectancy is also higher at 75.1 years compared to the India average of around 72 years. What complicates the process for Keralam is its high level of migration, especially among the younger population. As per the 2023 Kerala Migration Survey, 2.2 million people have migrated to other countries and another 0.5 million have done so to other parts of India. This means senior citizens are left behind.

3. Good long read on the Rs 2 trillion (initially estimated at Rs 1.08 trillion in 2017) Mumbai-Ahmedabad high speed rail. 

4. Make in India update.

Under the Electronics Components Manufacturing Scheme, or ECMS, ₹69,000 crore of investment has come in, exceeding the scheme’s original investment target by ₹10,000 crore. The government has approved 106 projects, to make speakers, microphones, camera modules, displays, relays, coils, rare earth magnets and so on... Domestic manufacturing now meets India’s requirement for some products, such as plastic enclosures, anode materials, optical transceivers and relays. Local factories meet 60% of lithium-ion-cell demand, 80% of laminate demand and 75% of connector demand. Some components, including networking equipment, relays, LED lighting parts and automotive electronics are beginning to be exported to China, Vietnam, Singapore, Italy, The Netherlands and other countries... But for all the gleaming new production lines, local value addition in India remains modest, at 15–18%, versus 40% in China. Critical chips continue to be imported. Printed circuit boards, sensors, and specialized materials are only beginning to be produced locally at scale. Precision components that go into earbuds, hearables, wearables, smartphones et al. depend on imports... Plastics, heat sinks, shielding covers, battery packs, chargers and cables are already increasingly local. The next round includes PCBs, display modules, camera modules, passive electronic components and semiconductor packaging.

5. It is hard to displace America as the pre-eminent economic power. Sample this, even amidst all the dysfunction.

One Trumpian key performance indicator is what you might call the national cash flow statement. Gross payments entering America of all kinds hit a huge 30 per cent of GDP in the second quarter. Reflecting the aim of monetisation, not autarky, America is more globalised than at almost any point in history other than the prelude to the 2007-09 crisis. Energy exports have exploded. Weapons sales overseas are rising at a double-digit rate. Tech and financial firms are printing money abroad. Capital inflows, mainly from portfolios, loans and firms, are staggering, although exceeded as a share of GDP by the pre-2007 mania. While America is now spending almost as much on AI chips and tech hardware imports as on defence, the current account deficit has eased to 3 per cent of GDP. The payments of all kinds leaving the US must balance those entering, but investment outflows are often orchestrated by Wall Street, boosting the US’s role as the world epicentre of capital allocation.

6. The always excellent Simon Kuper is spot on about French politics.

The French tend to talk radical but act conservative. This is a country where 57 per cent are homeowners, and many people spend their lives looking forward to retirement. They rely on the state. They want it to function. Revolutionary language is in part just a bow to French heritage. Even many of the voters who backed radicals in past elections quietly wanted an overeducated technocrat to win. Then they could spend five years protesting against him. The 1968 “revolution” culminated in the election of centre-rightist Georges Pompidou, product of the École Normale Supérieure. But last Saturday was a dramatisation of a new French political alignment, in which technocrats, with Emmanuel Macron as their final incarnation, risk being chased from the stage...

Macron has governed as a high-handed leader — “Jupiterian”, in his own description — who rarely consults. “Macron’s Achilles heel is that he’s not good at dealing with negotiation,” Philippe Aghion, the French economist who won last year’s economics Nobel, told me. “They don’t know how to deal with social movements. Or they don’t have the patience.” This is a Macronian flaw, but it’s also baked into France’s “vertical” political system, says the philosopher Gaspard Koenig. He pulls out his copy of Tocqueville’s Recollections, about the 1848 revolution, and reads: “But there is one institution that cannot be destroyed: centralisation.” Koenig says that demonstrators typically aspire only to replace France’s mighty leader with a different mighty leader.

And this is a problem for governments across the world, as electorates are unwilling to accommodate.

France’s deficits are becoming a slow-burn crisis. Public debt of 120 per cent of GDP would be manageable if parliament could agree to start cutting the deficit. Jean Tirole of the Toulouse School of Economics, the economics Nobel laureate for 2014, says: “I think what financial markets are worried about is the fact that nothing is happening.” He contrasts France with Greece during its 2010s’ debt crisis: “The Greeks at some point realised that things were very bad. I’m afraid we are not at this stage.” Popular support for balanced budgets appears weak. Government spending is 57.3 per cent of GDP, joint highest in the western world with Finland, and Tirole notes that even with deficits of 5 per cent, many accuse Macron of “austerity”.

7. The shortening of US debt tenors.

US Treasury secretary Scott Bessent appears to be reducing the average weighted maturities of Treasuries. These currently stand under six years (compared to 13 years in the UK, or around eight years in Germany, France and Japan)... One reason, Treasury officials tell me, is that — unlike with credit cards — short-term rates are currently lower than long-term ones. Another is that recent structural shifts in finance are boosting demand for short-term debt. The fast-expanding stablecoin sector, for example, is gobbling up short-term dollar debt — and now holds more Treasuries than Saudi Arabia and Germany combined. The maturity of debt bought and held by the Federal Reserve is also declining. And foreign investors are tilting short-term too, either because they are wary of making long-term bets on the US or because of foreign hedge fund trading strategies. Indeed, Fed research shows that hedge funds doubled their US debt holdings between 2023 and 2025, and now control about 8.5 per cent of the market — more than the official holdings of Japanese, Chinese and Saudi Arabian investors combined.

8. China's battery competitiveness in numbers. 

China's battery manufacturers -- CATL, BYD, Gotion, CALB and Sungrow -- are able to build a gigafactory — the industry term for the plants making cells used in EVs, AI data storage centres and power grid backup systems — in China for about a third of the cost and three times faster than building the same type of facility in Europe.

9. Indian states are paying exorbitant subsidies to attract data centres.

And the investment is all coming from foreign firms. 

10. Rama Bijapurkar points to an important aspect of the battle at Tata Sons and raises pertinent questions.

That a CEO with no shareholding backing, along with board members who do not represent chunks of shareholding, can challenge a promoter with a 66 per cent holding and pressure it to dilute its stake, and not have sway over decisions is a first-time challenge to power structures — which have stood the test of time, tradition, convention, and culture, rightly or wrongly. It brings a fresh round of calibration, especially by promoters, of their terms of endearment and engagement with professional CEOs, not to mention boards. More so, if their shareholding is well below 51 per cent... Given the promoter-friendly, promoter-respectful and promoter-on-top ethos of corporate governance that has existed and continues to exist in India, this departure from the norm against none other than the venerated, iconic Tata promoter group with its track record of trusteeship and larger good over personal gain has rocked the comfort boat all around.

The ripples it will cause are yet to become clear — will promoters be nervous seeing such a coup by the professional hire? How will they respond? Will they pick boards like in the old days, based on loyalty and narrow subject-matter expertise? Especially as the law of the land and the market regulator push more power and accountability in the hands of independent directors? Will boards be now placed under more pressure from external directives on which way to vote, getting trapped between the rock and the hard place of the promoter and the proverbial hand of God? Will CEOs have less freedom to operate and more fetters? And does this add to the bad rap that India has been getting of late as a safe, stable place to invest in for the long term? Probably yes to all.

11. Akash Prakash provides some home truths on India's equity markets.

Since the Indian market’s peak in September 2024, we have seen $65 billion in net outflows by foreign portfolio investors (FPIs). Over the last decade, India has received zero net-foreign flows. The stock of Indian equities owned by foreigners has fallen from $930 billion to about $675 billion, and foreign ownership as a percentage of the market is now at a 15-year low. India is now a consensus underweight for all global investors and our weighting itself has shrunk from 21 per cent in September 2024 to about 10 per cent today (MSCI Emerging Market index). One company, TSMC, has a benchmark weight 50 per cent higher than that of all of India! The three EM heavyweights — TSMC, Samsung Electronics, and SK Hynix — together account for 30 per cent of the index, but have almost three times India’s weighting...

Since the peak in September 2024, Indian equities are down about 25 per cent in dollar terms, even as the EM indices are up about 50 per cent. We have, therefore, underperformed by 7,500 basis points (75 percentage points) in the last two years alone. I have never in my career seen this quantum of underperformance in this short a period. It has destroyed careers and blown up funds. There are numerous funds that have destroyed 10-year track records in the last 24 months by simply being overweight India... for the first time I am now being asked about the need for an India-dedicated allocation. Many allocators no longer think India is important enough to warrant dedicated exposure.

12. India's battery energy storage systems (BESS) capacity is surging. 

On 3 September this year, the CEA proposed mandating two-hour battery energy storage systems (BESS), with capacity equivalent to at least 10% of installed capacity, for all new solar and onshore wind projects commissioned after 1 July 2027. These systems can store solar and wind energy when it is generated for use later. India currently has only 8.6 gigawatt hour (GWh) of BESS capacity. Another 42.53 GWh is under construction, 38.42 GWh has been awarded, and 65.57 GWh is in the tendering process. That amounts to 155.12 GWh of existing and planned BESS capacity, while the CEA projects a requirement of 236 GWh by 2032.

The boom in solar generation is now creating problems like excess supply and the need for curtailment during day times. 

According to Ember, a Norway-based think tank focused on energy transition, transmission constraints led to the loss of 300 GWh of clean electricity in India in the first quarter of 2026 (January–March), particularly at grid pooling stations in the northern and western regions. On 30 March alone, India lost 34 GWh of clean generation, equivalent to the daily electricity use of about 5 million urban middle-class households, Ember said in a report in May. The analysis also found that total renewable energy curtailment in Q1 2026 reached around 470 GWh, of which 300 GWh stemmed directly from transmission constraints. The northern region accounted for 178 GWh and the western region for 122 GWh. The southern region recorded none, reflecting better synchronisation between generation and grid expansion...

Inadequate transmission capacity has left about 40GW of power purchase agreements (PPAs) and power sale agreements (PSAs) unsigned, according to the Ember report... Inadequate energy storage has also led to an oversupply of solar power, primarily between 11 am and 3.30 pm, forcing discoms into distress sales on power exchanges, according to executives with power developers. Power prices fell below ₹0.05 per unit 31 times in the first quarter of FY27, hitting zero on 1 May, according to data from the Indian Energy Exchange. In the year-earlier first quarter, power prices had dropped below ₹0.05 per unit six times... The bulk of India’s electricity is sold under long-term power purchase agreements at fixed schedules outside the exchange. Only about 13% of the country’s power is traded on the market.

13. Weight loss drugs are impacting the economy in unexpected ways.

As of June, roughly 38mn people in the US were actively using them, according to pollster Gallup. In the UK... People on weight-loss drugs are changing what they eat, do and buy, distorting traditional patterns of consumer spending. For certain sectors, such as gyms and healthcare supplements, GLP-1s are creating new customers and opportunities for expansion... Brands from restaurant chains to alcohol are trying to protect their margins by selling less of their product for the same price — or higher... In the UK, GLP-1s have cut grocery spending by an estimated £780mn per year at current uptake rates, according to Worldpanel by Numerator, a research group... Weight-loss drugs are part of what now looks like a broader, permanent shift in consumer behaviour, analysts say, as people fixate on health — on eating protein, taking supplements and tracking nutrition and exercise, while cutting back on alcohol.

And this

A 10 per cent average weight reduction among the 178 passengers on a Boeing 737 Max 8 would shave 2 per cent from the aircraft’s take-off weight, she found. For the four large US carriers combined, these savings could equate to about $580mn per year... The Magnum Ice Cream Company is focusing on bite-size and small portions and ice cream enriched with protein, which users are advised to eat more of to offset the muscle loss associated with the drugs.

14. The evolution of India's capital gains taxation regime for equities.

And STT in various countries.

15. Immigration in Spain under the Socialist Prime Minister Pedro Sanchez.

Between 2019 — the prime minister’s first full year in power — and 2026, the number of foreign-born residents in Spain surged by 3.5mn to 10mn, taking the country’s population to almost 50mn, according to the national statistics agency. Sánchez says immigrants have helped make Spain the rich world’s fastest-growing big economy, although growth in GDP per capita has been less impressive.

Some thoughts on navigating the dilemma with Chinese FDI

The FT has a long read that describes how China’s battery manufacturers are building supply chains outside the country. 

There are two main drivers of this trend. One is to overcome the protectionist barriers being erected by its major trading partners. In recent weeks, the European Union has announced localisation rules to take effect from next year and slapped quotas on hybrid EV imports. The EU also wants to fully localise its battery supply chain by the end of the decade. And these restrictions will only get tighter and more widespread geographically with time. Second is the profitability squeeze on manufacturers due to the excessive domestic supply of EVs and energy storage battery-making capacity that is forcing them to look outward. All the battery makers are struggling, with CATL missing third-quarter results, and its shares have almost halved since early June.

For now, they are maximising exports from domestic factories, but realise that localisation is the way forward. To this extent, they are also pushing their Chinese suppliers to invest in overseas facilities. 

As a headline, the likes of CATL, BYD, Sungrow, CALB, and Gotion have announced investments of $12 bn across 14 deals this year, taking investments since 2023 to about $90 bn, composed of $52 bn in cell manufacturing and $38 bn in materials manufacturing. 

The investments are geographically spread out, covering all major regions. The glaring exception is South Asia. In simple terms, given the overwhelming dominance of China, India appears almost completely absent from the battery supply chain. 

This is disturbing also because not only is China currently dominant, its dominance in technology, battery materials, and price competitiveness is such that it is expected to continue well into the next decade. 

While the Indian market is significant, it may not be big enough by itself, and the bigger attraction for the Chinese manufacturers would be to use it as a hub for exports. Here, India might have a competitive advantage with its lower construction and ramp-up costs compared to the US and Europe. 

Battery manufacturing may perhaps be an extreme illustration of how shunning Chinese manufacturers threatens to cut India out of the global battery supply chain. But the same risk exists in many other industries where domestic capabilities are weak and Chinese dominance is too big to be surmounted for the foreseeable future. 

This is a teachable illustration of the formidable dilemma that countries like India face. On the one hand, it must not allow its domestic manufacturing base to be destroyed by Chinese imports and become dependent on China. But on the other hand, it must not only not miss out on frontier technologies but also build its domestic industrial capabilities. 

This was the exact dilemma China faced with the Western manufacturers in the late nineties and early noughties. It played the long game of luring the biggest Western multinationals (Apple, Tesla, Volkswagen, and GE are only some examples) by dangling the country’s large domestic market and skilled workforce, and with attractive bespoke deals. In due course, it extracted joint ventures, forced technology transfers, cultivated its own domestic champions across industries, and finally forced out the foreigners. 

This trajectory of localisation requires three things. One, the government displayed single-minded dedication and purpose, along with high state capability, in dictating the pathway and calibrating policy accordingly. Two, its companies played their part by learning diligently and quickly, and exhibiting an ambition and risk appetite that matched the government’s objectives. Three, the foreign multinationals were both complacent and greedy enough to fall for it and share technology with their Chinese partners. 

The best example of this kind of localisation is the story of Apple and the iPhone in China. As I have blogged here, Apple made the iPhone in China, and the iPhone made China!

So how have other countries been responding?

Indonesia has been the most successful example of forced localisation by leveraging its raw material resource base, specifically nickel and cobalt. It is part of its hilirisasi strategy to promote downstream development. The goal is to ensure that the value generated by Indonesia’s vast reserves stays in Indonesia, not in the factories and refineries of foreign investors. Starting in 2014, it banned the export of nickel ore and forced Chinese stainless steel makers to localise refining and processing. In 2020, it extended the ban to similarly force Chinese EV battery makers to establish local manufacturing facilities. 

The most consequential step was the establishment in 2021 of two high-pressure acid leaching (HPAL) facilities in Central Sulawesi’s PT Indonesia Morowali Industrial Park (IMIP), as a joint venture between a Chinese consortium of Tsingshan, GEM, CATL, and Hanwa, and Bintang Delapan Group, a prominent local mining and energy conglomerate, as a minority partner that facilitates local operations, land concessions, and mining logistics. Since then, CATL and partners broke ground in 2025 on a $6 billion integrated project spanning the entire chain from mining to recycling. Indonesia has also drawn non-Chinese capital, from an LG Energy Solution–Hyundai integrated battery deal worth $9.8 billion. It has also established the state-owned Indonesia Battery Corporation to partner with foreign investors. In April 2026, President Prabowo broke ground on 13 new natural resource processing projects worth $7.6 billion.

Spain is another example worth studying. There are at least three joint ventures —Ebro Motors-Chery, Stellantis-CATL, and Santana Motors-BAIC — of note. The JVs require meeting two benchmarks — procurement from Spanish suppliers and technology transfer. 

The Europeans are now trying to emulate China with its draft Industrial Accelerator Act (IAA) that seeks to lift manufacturing to at least 20% of EU GDP by 2035 from 14% in 2024. While its details are not finalised, it proposes local content requirements to qualify for selling in the EU, and access state incentives and public procurements. For vehicles accessing incentives or public procurements, it sets a three-level definition of a “European vehicle” - assembly in the EU, an immediate 70% local content threshold for automotive production in the region, and a 50% threshold for critical components - to be achieved within three years. It also proposes a pre-approval regime for FDI in strategic manufacturing to ensure that it strengthens EU capacity rather than merely assembly. It is pertinent that the EU is proposing this despite it being clearly in violation of WTO regulations. 

The real test of these efforts is genuine technology transfers and serious localisation. Chinese firms, and more importantly, Beijing, will do its best to avoid this so as to prolong its dominance. The Indonesian example offers cautionary notes. The localisation of production has not translated to localisation of ownership or know-how, with Chinese firms controlling roughly 75% of Indonesia’s refining capacity. 

Much the same applies to the Spanish JVs. It now emerges that CATL plans to send 2,000 of its own skilled workers to the €4.1bn Zaragoza plant to commission it, and Stellantis feels that the Chinese don’t want to share the know-how required to set up a battery factory. It is also becoming apparent that CATL and Chery will license their technology rather than transfer it outright, with no clear timeline for shifting underlying IP to Spanish ownership and no targets for local R&D. 

The clear lessons from these case studies are that while market access and raw-material gates are powerful enough to compel a Chinese firm to locate production and even enter a JV, they do not, by themselves, compel it to surrender the crown-jewel know-how — they control the pace of transfer and can substitute licensing, expatriate labour, and retain process secrets for genuine capability-building. The genuine transfer of technology to Indonesian and Spanish firms has been thin. This risks replacing an export dependency with a manufacturing dependency and defeats the objective of moving upmarket to higher value-added segments. 

However, Indonesia is also showing the way how leverage can be exercised once the Chinese investments are sunk, in much the same way China has done to foreign investors. It has gradually introduced several regulatory restrictions aimed at increasing domestic value capture. They include an increase in taxes and levies, a requirement to retain forex earnings onshore, a reduction in nickel ore production quotas, and increased restrictions on work visas. 

The Chinese firms, having invested nearly $14 bn over the last decade in smelters, HPAL processing plants, and integrated supply chains calibrated to Indonesian ore, know that these assets cannot be relocated. 

The Ministry of Energy and Mineral Resources set the 2026 national nickel ore quota at 260-270 million wet metric tonnes, down from 379 million the year before, while reverting to an annual approval cycle that gives the government tighter, year-by-year control over supply… The combined weight of these policies, alongside rising input costs driven by conflict in the Middle East, hit three of China’s biggest players in Indonesia with concrete force in 2026.

Tsingshan, Indonesia’s largest single nickel investor, saw its flagship Weda Bay mine quota collapse from 42 million tonnes in 2025 to just 12 million tonnes in 2026, a cut of over 70%… Huayou Cobalt, operator of the Huafei project, paused roughly half of its production capacity from 1 May 2026. The revised pricing formula pushed smelting costs up by an estimated $300 per tonne… And Brunp Recycling, the battery materials subsidiary of CATL, saw its Indonesian nickel feedstock supply disrupted, threatening the upstream end of one of the world’s most critical EV battery supply chains… 

In April 2026, President Prabowo broke ground on 13 new natural resource processing projects worth $7.6 billion. He called downstreaming the path to national revival, with nickel as the centerpiece. Quota controls serve the same purpose as the export ban: by concentrating ore supply toward domestically-oriented processors, Jakarta is trying to shift the value chain in its favor. Beyond controlling its own supply chain, Indonesia has pursued a more ambitious goal: becoming the OPEC of nickel… The ambition has since taken more concrete form: last month, Indonesia and the Philippines established the IndoPhil Nickel Corridor working group to coordinate mining activities. Together, Indonesia and the Philippines account for roughly 75% of global nickel production, which is in theory enough to exercise pricing power if the coordination holds..

Chinese companies, too, are accommodating in responding to the requirements of hosts. In a recent instance, Ming Yang Smart Energy, one of China’s largest wind turbine manufacturers, is seeking to address European national security concerns by placing data beyond the reach of Chinese law by establishing separate European legal entities with independent governance and IT systems. This is also to insulate its European customers from the reach of China’s National Intelligence Law requiring companies to cooperate with state agencies. The decision follows the UK government’s decision to disallow the use of its turbines in British offshore wind farms, which aborted the company’s plans for a £1.5bn factory in Scotland. Ming Yang is also responding to the UK decision by forming a joint venture with Octopus Energy, with the UK energy retailer providing software and control systems.

There are lessons for countries like India. 

For one, given the dominance of Chinese firms in the supply chain from raw materials to components, there is no alternative but to rely on them for now. Even countries like the US have realised this and reconciled to accommodation, at least for some time. In the circumstances, the strategy can only be to gradually reduce the dependence. 

The strategies will vary across sectors. But generally, the objective should be to start by forging joint ventures, even with minority partnerships, and encourage technology licensing. The important factor here should be the domestic partner. It is necessary to ensure they are deep-pocketed and well-connected, who can work the system both here and outside. Indian public sector units cannot play this role. 

India’s case-by-case approvals to date reveal a requirement for JVs. JSW’s JV with SAIC for MG Motor India, which was cleared in 2024, and Uno Minda’s EV-components JV with Inovance Automotive of China for advanced powertrain technologies, including inverters, e-axles, motors, and combined charging systems, cleared in June 2026, are good examples. Equity-free technical alliances (licensing of technology) like Dixon Technologies with HKC for display modules, Bhagwati (Micromax) with Huaqin, and PG Electroplast with Shanghai Highly for AC compressors are less useful, but acceptable if there is no other choice.

The insistence on JVs with Indian majority shareholding, no Chinese leadership, and technology transfer is a more demanding version of what Indonesia or Spain has done. While ideal, it risks throttling Chinese FDI in India and the much-needed access to advanced manufacturing technologies. And the evidence so far concurs. 

The Indonesian example also shows that once significant investments are sunk and supplier ecosystems transplanted to make relocation difficult and further expansion the natural choice, there is considerable leverage with the host country in extracting concessions. And in India’s case, the by then larger domestic market and more advanced manufacturing ecosystems would make staying and expanding more attractive. Incidentally, this is also the game that China played with Western multinationals during its manufacturing expansion journey.

The other important aspect is to encourage the biggest corporate groups into striking JVs with the Chinese. Areas like solar generation, battery energy storage systems (BESS), electric vehicles, electronics, smart meters, petrochemicals, etc., are only some examples where India’s corporate behemoths are also active. I had blogged here on how large domestic corporate groups can help with domestic manufacturing and localising value addition.