Slowing Growth, Thriving Tech
Despite slowing economic growth, China’s industrial and tech strength remains formidable. Its economy is ~75% the size of the U.S. in dollar terms, but China accounts for 33% of global manufacturing value-added, projected to rise to 49% by 2050. “China is very strong in all sorts of advanced manufacturing... in many cases it is almost entirely a Chinese concern.”

The gap is vast, according to another panelist: in 2023, China had 1,500 commercial ships under construction; the U.S. had three. Non-state firms drive export growth, crowding out for shrinking shares of foreign-led exports (60% to 30%). “There is plenty of profitable activity going on, especially in the non-state sector.”

Meanwhile, Made in China 2025 has paid dividends. “At a first approximation, it looks like a pretty good success,” said one panelist, citing EVs, clean tech, and automation, but admitted that weaknesses persist in sectors like semiconductors and aerospace. Nevertheless, China’s highly competent manufacturers, tech companies, and deep reservoir of human capital ensure that despite costly and inefficient industrial policies, China still has “a good amount of fuel left in the tank.”

Rather than stagnating like Japan in the 1990s, panelists agreed China would more closely resemble a “Leninist Germany”—an authoritarian state with a globally competitive, export-driven, tech-intensive economy.

An Enduring Value Proposition for the World, but Pushback is Growing 
Around the world China is embedding itself in local production ecosystems. Several panelists described how Chinese firms have established smartphone assembly plants in Ethiopia, Uganda, Kenya, and Indonesia. EV assembly and battery processing plants have followed, particularly in Zimbabwe and the DRC. In practice, countries receiving China’s investment often express more concern about being left behind by the West than overwhelmed by China.

China’s outbound investment is not just commercial; it is also strategic. As one panelist put it, this “industrial diplomacy” steers capital toward geopolitically friendly or economically useful countries—especially those with preferential trade access to the U.S. or E.U., like Mexico and Morocco—and away from places perceived as hostile, such as India.

This strategy has helped China rebuild global supply chains with itself at the center, creating new production ecosystems around batteries, robotics, AI, and advanced manufacturing. As one expert noted, firms like BYD, Xiaomi, and Huawei are at the core of “interlocking industrial ecosystems” that tie together multiple cutting-edge sectors across borders.

Yet pushback is growing. In 2023, 117 of 198 World Trade Organization complaints against China came from low- and middle-income countries. These nations aren’t rejecting Chinese investment, panelists pointed out—they’re renegotiating harder, hedging more, and believing less.

The conference underscored a world in flux—one where China’s industrial and technological dynamism continues to reshape global supply chains even as its assertive statecraft provokes growing resistance. While some panelists warned of the breakdown of integrationist hopes, others saw opportunity in a more defined and stable strategic rivalry, even if it takes the form of a new cold war. A key takeaway was the paradox of China’s global role: it remains an important source of growth and innovation, yet inspires distrust that is prompting nations to pursue more reciprocal, conditional partnerships. In navigating this uncertain era, both China and the West appear to be groping toward a new equilibrium—messy, complex, and decidedly post-unipolar.

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Mounting hidden local government debt is one of China’s pressing challenges. Held by local government financing vehicles (LGFVs) and estimated between US$8-10 trillion, this off-the-books debt originates from a long-running tug-of-war over tax revenue between China’s central government and the localities. In the years before COVID-19, LGFVs controlled their debt by drawing on steady non-tax revenues. In summer 2020, however, approximately six months after the pandemic broke out in Wuhan, the hidden debt held by LGFVs began rising dramatically. Today, many of them are nearing default, and local governments are increasingly going broke.

​​Why did hidden LGFV debt rise so much during COVID?

A recent study, published in The China Journal, sheds light on this question. The study’s co-authors – including Jean Oi, the William Haas Professor of Chinese Politics, a senior fellow at the Freeman Spogli Institute for International Studies, and director of the China Program at APARC – use quantitative data to show how China’s central government’s regulatory crackdowns on income tied to the real estate sector during the pandemic disrupted the revenue sources LGFVs and their local governments relied on to service their debts. These policy changes “interacted with the zero-COVID policy to create a perfect storm, pushing hidden local government debt to new highs,” they write. 

Their study draws on a wide array of quantitative data, tracking information on factors ranging from COVID shocks (including confirmed cases and deaths) to, among others, government medical responses, special treasury bonds and their allocation, local debt, land purchases, and business activities. Using these sources, the co-authors built a province-level dataset covering all 31 of China’s provincial units from 2018 to 2022, allowing comparative analyses before and after China’s COVID shocks. They organized the data into three categories: (1) the impact of COVID on small and medium enterprises; (2) government fiscal responses and COVID expenditures during the pandemic; and (3) local government finances and debts.

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The Pre-COVID Era: The Grand Bargain That Failed

China’s local debt problem traces back to the 1994 fiscal reforms, which recentralized tax revenues in Beijing and left local governments with chronic budget shortfalls. To bridge the gap, the central government struck a “grand bargain”: while claiming a larger share of tax income, localities could generate new non-tax revenues through special-purpose vehicles, namely, local government financing vehicles. These LGFVs were set up as state-owned enterprises to incur and hold debt off-the-books, yet not illegally, on behalf of local governments.

The workaround fueled rapid development for years but laid the groundwork for today’s mounting hidden debt crisis.

“The success of LGFVs hinged largely on revenue generated through land finance,” explain Oi and her co-authors. “Local governments provided LGFVs with cheap land as collateral for bank loans and bonds. Further revenue was generated from preparing and selling land to real estate developers.”

Thus, LGFVs powered over a decade of rapid growth in China, driving infrastructure booms and urbanization that made the real estate sector a cornerstone of the economy. The model appeared mutually beneficial: the central government gained more tax revenue as the economy grew, while local governments used land sales and debt to fund development. But this growth depended on a continuous flow of non-tax income, making the system increasingly fragile.

After the 2008 global financial crisis, Beijing launched a sustained push to rein in local government hidden debt, focusing heavily on LGFVs. By 2017, officials labeled the risk a “gray rhino.” Yet this drive for fiscal discipline ground to a halt with the onset of COVID.

A Perfect Storm of Policy and Pandemic

The pandemic’s impact was swift and severe. Small and medium-sized businesses, especially in the hardest-hit regions like Hubei Province, saw their incomes collapse by up to 90%. In response, Beijing provided a massive fiscal support package to localities, including one trillion yuan in special COVID bonds to offset the costs from the initial onslaught of the pandemic. Crucial for LGFVs, these bonds cushioned the impact of the pandemic on land sales.

By summer 2020, however, as China was still locked away from the rest of the world and COVID was under control, Beijing resumed its policy agenda to enforce fiscal discipline and curb local government debt. The central government’s most consequential measure was the “three red lines” policy, which dealt a major blow to China’s real estate sector by sharply restricting developers’ ability to borrow once debt thresholds were crossed. The policy, expanded from 12 pilot firms in 2020 to cover the entire sector by 2021, disrupted the “borrow-to-grow” model and triggered a liquidity crisis. Evergrande, China’s second-biggest property developer, was among the first groups affected.

As borrowing dried up, firms struggled to repay debt, halted construction, and stopped buying land, slashing local government revenues. Land sales plummeted across provinces, with national revenue growth from land transfers plunging into negative territory by 2022. The crisis deepened when unfinished housing projects led to mortgage boycotts by frustrated home buyers, prompting more state intervention.

For local governments, the shift came at a steep cost. They were ordered to step in, using LGFVs to purchase land and inject cash into public budgets. As a result, even wealthier provinces like Shanghai and Guangdong saw sharp increases in LGFV debt.

“The call for LGFVs to buy land to create revenue for local governments made matters worse, turning land from a key source of revenue into a source of new debt and forcing LGFVs further to increase borrowing, all of which caused soaring increases in LGFV debt, without any alternative revenue source to service or pay that debt,” explain Oi and her co-authors.

A Fiscal Reform Imperative

The study shows how China’s shifts in central government policies during the pandemic – especially the three red lines and the directive for LGFVs to buy up unwanted land — exacerbated long-standing vulnerabilities in local public finance. What had been a delicate balancing act quickly became unsustainable.

“At the root of China’s continuing crisis of LGFVs' debt is China’s flawed fiscal system,” the co-authors emphasize. Before the pandemic, the system masked deficits by relying on LGFVs to generate off-the-books revenues, primarily through land sales fueled by a booming real estate market. This arrangement allowed Beijing to capture the bulk of tax revenue while localities chased growth. But when COVID struck and the property sector collapsed, the facade crumbled.

The fallout exposed how deeply local governments had come to depend on land finance – an unstable, non-institutionalized revenue stream. With the real estate sector once accounting for over 20 percent of GDP, its collapse left localities and their financing vehicles adrift. “In the context of a crisis such as COVID, the weakness of the fiscal system and LGFVs was exposed as policy instability added to the volatility of the economic situation,” Oi and her co-authors note.

The local government debt problem might not trigger a financial crisis in China, “but LGFVs and their local governments remain in dire straits,” they write. More worrying, the economy has not rebounded in the post-COVID years as hoped, and “as long as the real estate sector remains depressed, land finance will not be able to make local government budgets whole as it once did. The grand bargain can’t work.”

Rather than assume the debt, Beijing is extending lifelines: urging banks to offer LGFVs 25-year loans with temporary interest relief, approving debt swaps into longer maturity municipal bonds, and allowing new issuances of special-purpose bonds. But these are stopgaps, not solutions.

Hidden debt will keep resurfacing unless China overhauls the fiscal system born out of the 1994 reforms, Oi and her co-authors conclude. Institutionalized, dependable, alternative revenue streams for local governments are needed, or the crisis will persist. “It may be time for Chinese leadership to stop kicking the can down the road and undertake institutional reforms of the fiscal system. This may be painful, but there is no other sustainable solution.”

This interview first appeared in The Paper on April 4, 2025. The following English version was generated using machine translation and subsequently edited for accuracy and clarity.

It has been 122 days since South Korean President Yoon Suk Yeol issued an "emergency martial law" order on December 3, 2024. On the morning of April 4, the Constitutional Court of Korea will issue a ruling on Yoon’s impeachment case. From the National Assembly’s motion to impeach to 11 court hearings and now the final verdict, 111 days have passed—far more than for former Presidents Roh Moo-hyun and Park Geun-hye. Over these four months, the divide between the ruling and opposition parties — and within Korean society — has become increasingly apparent. Whether the Constitutional Court can safeguard the Constitution and public trust has become a major focus of public opinion in South Korea.

"I’ve long believed in the resilience of South Korean democracy, but over the past two or three months, I’ve started to worry. In the face of this current political stalemate, I wonder whether Koreans can still accept decisions that contradict their positions," said Gi-Wook Shin, Professor of Sociology at Stanford University, founding director of the Korea Program, and Director of the Walter H. Shorenstein Asia-Pacific Research Center, in an interview with The Paper. He noted that there are no signs South Korea will escape its current political polarization anytime soon — and that the situation may worsen.

Shin entered Yonsei University’s Sociology Department in the late 1970s. In the early 2000s, he founded the Korea Program at Stanford, focusing on social movements and nationalism. In 2024, he published Korea’s Democracy in Crisis: The Threats of Liberalism, Populism, and Polarization, a book whose concerns — resurgent populism and societal polarization — are now vividly reflected in real life.

On December 3, 2024, Yoon declared a state of emergency and described his political opponents as "anti-state forces." The language he used in his televised emergency address was directly reminiscent of the Cold War era. Meanwhile, during Yoon’s administration, opposition parties submitted a record 29 motions for impeachment. These episodes highlight deep rifts in Korean politics, intensifying the fierce struggle between the left and right across all levels of society.

The roots of South Korea’s political divide trace back to the post-WWII era. Under global pressures, political elites on the Korean peninsula quickly split into left-wing, right-wing, and various centrist groups, each hoping to build the country according to their ideals. After the United States and Soviet Union occupied different parts of the peninsula, a sharp ideological confrontation emerged, and the left and right failed to unite to establish a single nation.

During the military rule in South Korea, U.S.-backed authoritarian strongmen governed the country, laying the groundwork for today’s conservative political parties. Meanwhile, leftist forces were strengthened by decades of street protests. Since democratization in 1987, South Korean politics have swung between the left and the right. Under President Yoon, this shift toward the right has become even more pronounced.

Amid the growing hostility between conservatives and progressives, Yoon’s martial law declaration and subsequent impeachment proceedings have amplified South Korea’s political polarization and left-right conflict. Yoon’s supporters have launched massive demonstrations. Conservative voices have grown louder, with many chanting U.S.-style slogans like “Stop the Steal” in homage to Trump’s MAGA movement. Shin warns that among Asian countries, South Korea may be the only one to experience a phenomenon akin to “Trumpism.” A recent survey by Korea’s Center for Conflict Resolution found that most South Koreans see ideological division as the country’s most pressing social issue.

Conservative Voices Grow Louder, More Extreme

The Paper: From your observations, what changes has this political storm — from emergency martial law to the president’s impeachment — brought to South Korean society?

Gi-Wook Shin: Regarding presidential impeachment, Roh Moo-hyun’s case in 2004 was dismissed by the Constitutional Court, and Park Geun-hye was removed from office in 2017. Both previous cases strictly followed legal procedures with clear rules. But this time, the situation is far more chaotic, with fiercer partisan conflict. In a sense, we’re witnessing a threat to the rule of law.

On the other hand, mass mobilization by both the left and the right is very active, especially the anti-impeachment forces, whose scale and influence are significant. This shows that political polarization has deepened, and social division has worsened — developments that deeply concern me.

The Paper: In this wave of political turmoil, what is the core conflict between conservatives and progressives?

Shin: When martial law was declared, the right tried to assert control over state power and justified their actions with claims that pro-North Korean forces needed to be purged from the country. Their stance clearly supports the South Korea-U.S. alliance. In their protests, you’ll often see both Korean and American flags, as well as images of Trump and Yoon Suk-yeol side by side.

The left, by contrast, believes that this emergency declaration is essentially destroying the democracy that South Koreans fought so hard to achieve. They see the right not just as opponents, but as anti-state and anti-people forces.

Today’s political confrontation in South Korea is filled with resentment and hostility. It has become a kind of “identity politics.” That’s why compromise is so difficult. The two sides no longer see each other as legitimate political rivals, but as “evil forces” or enemies to be defeated at all costs.

The Paper: It’s been over three months since the martial law controversy began. As time passes, conservative voices have grown louder, the ruling People Power Party's approval ratings have rebounded, and anti-impeachment rallies are massive. Are we seeing signs of an expanding conservative base?

Shin: Large-scale protests aren’t new in South Korea. In the past, they were usually led by liberal or progressive groups. In recent years, however, right-wing and conservative forces have increasingly mobilized for protests. This is a new trend. You could already see this during the 2022 presidential election: it was extremely close, with Yoon and Lee Jae-myung separated by less than 1 percent of the vote. Conservatives realized the importance of mobilizing public support to counterbalance the left.

Indeed, conservative voices have grown louder and more extreme. We’re even seeing cases of storming courts and self-immolation. But that doesn’t necessarily mean their numbers are increasing. Overall, South Korea’s population is roughly divided into 30 percent liberals, 30 percent conservatives, and about 40 percent swing voters. Sometimes conservatives use “bluffing” to create the impression of overwhelming influence and suppress progressive mobilization.

The Paper: The far right is now active on the political frontlines, loudly supporting the conservative camp. Some far-right individuals even stormed the court. Right-wing YouTubers have become among Yoon’s most fervent defenders. In this context, will the People Power Party continue shifting further right, or even toward the far right?

Shin: What’s visible now is that the ruling People Power Party has some connection to the far-right forces in the current street protests. Especially in the wake of the martial law declaration and impeachment, the far right has taken the lead in organizing massive demonstrations, mobilizing hundreds of thousands every weekend.

There is latent cooperation between the ruling party and the far right. But now that the impeachment has triggered an early presidential election, the People Power Party must also appeal to a broader base, which means distancing itself from the far right — creating a dilemma.

If the People Power Party continues working with the far right, it may retain its base and ensure right-wing support. But elections are won by swing voters. Distancing from the far right helps avoid being labeled “extreme” and attracts moderates.

Given that the election will happen within 60 days of the impeachment, the ruling party has little time to adjust its campaign strategy. They must quickly decide how to handle their relationship with far-right street forces: should they continue cooperating or distance themselves? This will be a core political challenge in the coming weeks.

South Korea’s Democratic Crisis Reflects a Global Trend

The Paper: At conservative protests, many people carry signs with slogans like “Stop the Steal,” borrowed from Trump supporters. Trump had the “Make America Great Again” movement. Yoon has the Taegeukgi Budae movement (a far-right group of older conservatives, many of them fundamentalist Christians who strongly support Yoon). How do you see Trump’s influence on Korean politics?

Shin: It’s interesting. Among Asian countries, South Korea may be the only one to experience something like “Trumpism.” Two factors are worth noting.

First, there are organizational similarities between the Korean and American contexts. Yoon and Trump supporters share common traits, especially religious ones. That’s not the case in other Asian countries. For example, the Philippines is Catholic, others are predominantly Muslim or Buddhist. South Korea is the only Asian country where fundamentalist Christians have strong political influence. (Editor’s note: According to Yonhap, Korea’s Yoido Full Gospel Church is currently the largest Christian church in the world.) There seems to be a connection or sense of identification between American evangelicals and Korean Christian fundamentalists.

Second, ideologically, Korea’s right resembles America’s right. Their fondness for slogans like “Stop the Steal” reflects their belief in election fraud conspiracies. YouTube’s influence in Korea is possibly stronger than in most of the world, especially among the far right. It has become a vital tool for mobilization and organizing large-scale protests.

The Paper: South Korea’s democratization was closely tied to the U.S. export of democracy. After the Korean War, with U.S. support, South Korea adopted a democratic constitution and a relatively modern political framework. How has foreign influence shaped Korean democracy? Is it connected to the current democratic crisis?

Shin: U.S. influence on Korean democracy is complex. Until the 1980s, the United States supported South Korea’s military dictators like Park Chung-hee and Chun Doo-hwan. Only after 1987 did the United States back democratic development. But ultimately, it was the Korean people who fought for democracy. That’s why so many opposed the martial law declaration on December 3. They don’t want to give up hard-won freedoms. Many made great sacrifices for democracy.

South Korea has been democratic for over 40 years. What we see today may be tense or even extreme, but many places worldwide are also experiencing democratic backsliding. It’s unclear whether the United States is doing any better, especially in the Trump era. Many European countries — France, Italy, Hungary, the Netherlands, Spain — are facing similar crises.

South Korea’s current democratic crisis is part of a global trend. It’s just that the martial law announcement drew special attention. But populism, polarization, and identity politics are global issues.

The Paper: After democratization, South Korea again saw emergency martial law, fierce clashes between the president and law enforcement, and general chaos. Yet parliament quickly revoked the martial law order, the impeachment process followed legal procedure, and there were no bloodshed or full societal collapse. What has maintained this relative order?

Shin: South Korea has experienced many legal and political crises before. Also, civic engagement is very high: many LGBTQ+ and minority groups are highly politically active, perhaps even more than in the United States. That’s part of why political clashes are so intense, but it also shows a deep sense of civic participation.

Korea is a relatively well-governed country, with a strong bureaucratic system. I used to believe strongly in the resilience of Korean democracy, but over the past two or three months, I’ve started to worry. Can people still accept outcomes that contradict their positions?

In 2017, the Constitutional Court upheld Park Geun-hye’s impeachment, and most Koreans accepted it and moved on. But this time, it’s unclear whether Yoon’s supporters will accept a guilty verdict — they’re already challenging the court’s legitimacy. On the other hand, if the impeachment fails, opponents may also refuse to accept the result.

The political turbulence may persist for months, or even years.

How to Heal a Divided Society

The Paper: Beyond left-right ideology, what other messages are South Korean protesters trying to express? Also, Korean pop culture has entered these events: people are playing K-pop music and waving glowsticks. How do you see this unique cultural phenomenon?

Shin: Today, there are many legal disputes and procedural questions between the Constitutional Court, regular courts, the Corruption Investigation Office, prosecutors, and police. Sometimes the legal process is inconsistent or fragmented, which confuses the public and weakens faith in the legal system.

But Koreans have a long history of protest culture. They know how to demonstrate in an orderly way. Protests aren’t always serious or violent, sometimes they feel festive or recreational, with music, dancing, and food stalls. Some elderly people even travel from rural areas to Seoul for a day just to enjoy the atmosphere and social gathering.

Also, Korea is a highly centralized society — everything is concentrated in Seoul, and issues can quickly become national news.

The Paper: This political crisis has deepened Korea’s ideological rifts. A recent survey shows that ideological conflict is now seen as the most urgent social problem, even ahead of gender or wealth inequality. What can be done to prevent further division or begin healing?

Shin: There are no signs that Korea will overcome its political confrontation and polarization anytime soon. The divide may worsen. In the long term, I call for political reform.

Korea should adopt a parliamentary system. The current presidential system is “winner-takes-all,” so even if someone wins by less than 1 percent of the vote, they gain total control. A parliamentary system might encourage more cooperation and compromise. But I don’t think Korea currently has the political atmosphere to make that shift.

The electoral system also needs reform. Right now, each district elects just one representative — sometimes by a single vote — giving them total power.

Civic education is another area for reform. Koreans need to learn how to share and compromise. In Korean, “compromise” often carries a negative connotation. But in a democracy, compromise is essential. No one can get everything they want.

These are long-term reforms and there’s a long road ahead. What truly worries me is that in the next year or two, social division may grow even worse.