Global South rises in addressing economic challenges

The Global South has soared since the 1980s. As developed economies' share of global GDP declines, emerging markets have seen their proportion rise from approximately 15 percent to 42 percent. In purchasing power parity terms, emerging markets collectively surpassed developed economies as early as 2008, while BRICS overtook the G7 in around 2020.

The Global South now accounts for nearly 80 percent of the world's population, approximately 40 percent of GDP, 60 percent of FDI flows and 40 to 50 percent of international trade volume. This economic clout ensures their participation in global governance.

In 2024, the Global Times Research Institute carried out a public opinion survey on national issues in Russia and 11 other developing countries. Opinion polls indicated that nearly 90 percent of respondents affirm the Global South's growing international influence and recognize China's leading role within this bloc. Additionally, over 80 percent acknowledge BRICS' representative function for the Global South.

The current risk of global recession and its countermeasures can be analyzed from three aspects: the"3D Challenge", downward spiral and a triple inflection point.

In the long term, demographic, debt and decoupling form the "3D Challenge". Specifically, the continuous decline in labor supply, combined with a rising old-age dependency ratio, mark the acceleration of global aging.

Meanwhile, debt-based economic growth is unsustainable as the global government debt ratio has doubled over the past decade and shows no signs of plateauing. Besides, trade and investment flows have entered a steady decline after peaking, suggesting that the globalization dividend is now diminishing.

The Global South obtains better control toward the "3D Challenge". In stark contrast to the economic malaise gripping developed economies, emerging markets are enjoying a relatively abundant demographic dividend, limited increase in government debt ratio, and growth in FDI.

In the middle term, economy, social and political issues in the world create traps: stimulatory economic policies widen the gap between poor and rich, motivate populism and aggravated geopolitical turbulence, further encumbering economic growth and global development.

Developed countries carried out monetary and fiscal stimulus, but capital was diverted into financial speculation rather than productive investments. Consequently, asset prices appreciated while employment remained weak, amplifying global wealth inequality.

This then provoked right-wing populism, whose anti-immigration and trade protection policies hastened deglobalization. Furthermore, populism rose war risk and military spending hit record levels.

From available data, wealth inequality is on a shrinking course in emerging markets, but is expanding significantly in developed economies. Hence, the global populist issue mainly occurs in the US and Europe. In fact, collapse of the Soviet Union had not relieved global security and geopolitics. Global military spending, which is mainly consumed by developed economies, still crept up.

In the short term, the world is now at a triple inflection point, characterized by the US political shift, China's economic transformation, and global technological leap forward. The global economy still possesses internal fragility under the heightened uncertainty brought by both the profound changes unseen in a century and the dynamic equilibrium between triple inflection point.

Meanwhile, the unilateralism and isolationism shown in US policies have brought the "Kindleberger Trap" into sharp relief. Economic policy uncertainty, fueled by erratic trade and monetary measures, is pushing the world toward exacerbated financial fragility.

Global economic growth remains sluggish largely for the reason of technological innovations' failure to boost productivity, leading to a sustained decline in total factor productivity contributions.

Reflecting on the dot-com bubble era, short-term heavy investments contained a significant portion of blind capital deployment that underperformed expectations. The bubble burst led to market clearing, which triggered crisis.

Historically, both the Soviet Union and Japan suffered growth breakdowns when their GDPs reached 70 percent of US levels. China's current nominal GDP appears to follow a similar trajectory, but this is in relation to stage-specific challenges in its economy's structural adjustment and the artificial boost to US nominal GDP from post-pandemic inflation surges.

Additionally, when measured by PPP, Japan peaked at merely 40 percent of US levels, whereas China had already surpassed the US by 2015 — rendering the "70 percent curse" inapplicable.

China's sci-tech innovation is advancing at a breathtaking pace. The appearance of DeepSeek is not accidental. From 2018 to 2023, China published nearly 1.8 times as many AI research papers as the US, while dramatically climbing the Global Innovation Index rankings (reaching 11th in 2024) — making it one of the world's fastest-improving innovation economies.

As of 2024, China's "Three New" economy accounted for over 18 percent of total economic growth. The motivity of its economic development has shifted from demographic dividends to technological innovation, with the underlying growth logic transitioning from land finance to comprehensive development of new quality productive forces.

Previously, the Global South leveraged its demographic dividends to absorb industrial transfers from developed countries, thereby achieving industrialization. However, generative AI has accelerated the midpoint scenario for automation adoption — where 50 percent of current work activities could be automated — by a full decade (from 2035 to 2045), drastically eroding the economic value of labor abundance.

This shift manifests through two disruptive pathways: developed countries' manufacturing reshoring could trigger precipitous FDI declines in emerging markets, stalling their industrial progress, while developing economies risk exclusion from the AI value chain, losing access to technological leapfrogging opportunities.

China, which is doubling down on its commitment to globalization, is steadily becoming the central driving force for the Global South. Its outbound investment, particularly in emerging markets under the Belt and Road Initiative, has been growing year-on-year.

A critical portion targets infrastructure, enabling these economies to convert their labor pools and natural assets into manufacturing competitiveness. Simultaneously, China is scaling up AI infrastructure investments across the Global South to empower them in the technological revolution.

The views do not necessarily reflect those of China Daily.

The writer is chief economist and head of the Research Institute at China Galaxy Securities Co.