China Research

A discussion forum on emerging markets, mainly China – from a macro, micro, institutional and corporate angle.

“New global conditions for emerging country analysis”

February 23, 2026

Summary of the Keynote Address by professor Hubert Fromlet at the IIF International Research Conference & Award Summit (IIF-IRCAS), February 15, 2026, in Delhi / India  *

The world is changing and has always been changing. The same can be said about the characteristics of emerging markets and the analysis of this increasingly important group of countries. This includes the aspects and judgments of financial markets.

The future of emerging market analysis

It seems to be a safe forecast that politics will remain very important for the future analysis of emerging markets – probably increasingly important in a longer perspective. In this context, the analysis of China’s and Russia’s ambitions in the emerging world could become particularly interesting – certainly also the activities of the U.S. in emerging countries. The future positioning of the EU in emerging countries seems to be uncertain. Altogether, geopolitical ambitions of the three global superpowers will most probably gain further momentum in the analysis of emerging markets. 

Future geopolitical ambitions of the superpowers can also be related to the availability of commodities – some of them more attractive to industrial producers around the world than others, with their ups and downs. An interesting question may be the future of rare metals which should be a crucial topic also for India. Furthermore: To what extent can certain commodities be substituted in the long run?

Another issue of general analytical interest should be to what extent Western corporations will make their supply chains less risky and move purchasing and production closer to friendly countries or their own geographical hemisphere. This has been partly the case more recently – but less dramatically than originally apprehended. Probably, this will be mostly a China-related question. The role of the U.S. remains uncertain in this context.

Closely linked to the domestic political area is also the development of institutions which have been neglected for a long time in emerging market analysis. But no responsible economist should continue to do so in the future. We should not forget the scientific conclusions of Nobel laureate Douglass North who clearly demonstrated the positive correlation between institutions and economic growth (North 1993).

 It should be added that also long-term trends in demography in combination with educational investments deserve more special attention in the analysis of emerging markets. Such an angle will be particularly illuminating when it, for example, comes to India with its promising demographic outlook. This relationship will become more frequently examined in the future, i.e. to what extent the population increase of India can be managed by corresponding efforts in education, particularly for the younger population.

Certain macroeconomic indicators like GDP, inflation, government debt etc will, of course, be carefully examined by analysts in the future as well – despite the statistical shortcomings that doubtless exist in many emerging countries. But it should also be recognized that pure macroeconomic analysis cannot be considered as sufficient anymore. Trustworthy emerging-market analysts should also follow microeconomic and financial developments in emerging countries. Improving and well-working financial markets can contribute so much to the performance of an emerging country.

The brief summary above on future main topics for the analysis of emerging markets points clearly at continuous analytical mergers between mainly politics, economics, finance on the one side and corporate management on the other side.

Having said this, one may also foresee that future anaIysis of emerging markets will  create further fields of special attention. I still believe that sociology and psychology play an underestimated role on global financial markets but also as regards the analysis of emerging markets as such. Analysts still can try harder to understand the messages and plans of the political leaders in the U.S., Russia and China which – in my view – is not possible without a better psychological understanding of their political leaders.

Finally, I also would like to mention another three areas that will matter in the future analysis of emerging markets. I am speaking about the future developments of investments in IT / AI, the environment and health care – i.e. the development and application of new technology. Will the divide in these areas between different emerging countries increase further? This is certainly something to observe in the future, too. Especially AI still contains – apart from obvious opportunities – a lot of unforeseeable risks and threats both globally and for single emerging market countries.

Is there a new risk for uncontrolled herd behavior coming from AI exuberance and AI application with thinkable severe consequences – also for the emerging world (see also Fromlet 2004)? Or should the risk of being insufficiently ambitious in AI development be considered as larger? What about the risks of a painful future digital divide among emerging countries? No one can answer these questions with reasonable probability – neither AI supporter and Nobel Prize winner from 2025, Philippe Aghion (Aghion and INSEAD 2025), nor AI sceptic and Nobel Prize winner from 2024, Daron Acemoglu (Dizikes 2025).   

Summary – new or changing fields of future emerging-market analysis The analysis of emerging markets has been changing substantially in the past and will do so in the future. The following examples that have been mentioned above as future keys and contributions to the analysis of emerging markets look as follows (without ranking):

Traditional analytical issues of the past but still crucial beyond 2026 
¤ well-known macroeconomic indicators, e.g. GDP, inflation, current account, debt, etc
¤ microeconomic and corporate trends (including supply chains)
¤ financial market developments 
¤ education on all levels  
¤ institutional improvements.                                                                                                                    

Increasingly important issues more recently and beyond 2026
¤ Politics
¤ For non-Indian analysts: the future rise of India (the Indians themselves know about it)
¤ China, Russia, the U.S. and their attempt to create a new world order
¤ investments in IT / AI,
¤ future risks for financial (AI) bubbles and AI divide in the (emerging) world 
¤ environmental policy  
¤ energy demand and production                       
¤ demography 
¤ psychology and sociology. 

Finally, I would like  to thank once again for the invitation to speak today at the IIF. I do wish India and the IIF all the best for the future. Such an interesting country and academic institution (Fromlet 2024) – always worth-while visiting, also for analysts. Watching the screens in a trading room should not be enough for foreign emerging market analysts for receiving a correct and fair impression of the Indian “continent”! 

Hubert Fromlet, Linnaeus University     

* The whole presentation will be published in the March number of “Finance India” (edited by IIF)

References:
Aghion , Ph and INSEAD Knowledge (2025), “Will our institutions keep up with AI? https://knowledge.insead.edu/economics-finance/will-our-institutions-keep-ai

Dizikes, P (2025), “A Nobel laureate on the economics of artificial intelligence”, MIT Technology Review        (MIT Alumni News: 77), https://www.technologyreview.com/2025/02/25/1111207/a-nobel-laureate-on-the-economics-of-artificial-intelligence/

Fromlet, H (2004), “The Run to China: Another Example of herd Behavior?”, Economic & Financial Review, no 1, pp 103-124

Fromlet, H (2024), “China vs India – who wins in the long run?”, China Research, Linnaeus University, https://blogg.lnu.se/china-research/?p=3582

North, D C (1993), “Economic Performance through Time”, Nobel Prize Lecture, https://www.nobelprize.org/prizes/economic-sciences/1993/north/lecture/

India and the EU agree on Free Trade

January 28, 2026

After 18 years of negotiations, India and the EU finally managed to conclude a deal on an important Free Trade Agreement (FTA), probably accelerated by President Trump’s irrational tariffs which had hit both India and the EU. More than 20 percent of global GDP is covered by this FTA and almost two billion people live in this gigantic area. India has the largest population in the world with very good growth rates in recent years. Since the EU so far failed to implement its trade deal with Mercosur, the FTA with India has also significant psychological importance for the future of the EU.

Declining tariffs or down to zero in the forthcoming decade

Obviously, European industry will benefit a lot from the gradually declining or disappearing tariffs, for as much as 96 percent of all European industrial products during the forthcoming decade. Good new business opportunities will mainly show up for European cars, aircrafts, machinery, etc. Indian exports will particularly be favored in industries like IT services, chemicals, pharmaceuticals, engineering goods, textiles, and jewels.

More recently, bilateral trade between the EU and India counted for about 180 billion euro. Agriculture is not included in the FTA which should make the still necessary European political approvement easier than it had been the case in the Mercosur process. Furthermore, another major advantage of the FTA is the strengthening of supply chains and the reduction of geopolitical vulnerability, indeed for both sides.

Model simulations show that the FTA could increase Indian exports to the EU by 41 percent and EU exports to India by 65 percent. This would lead to substantial income gains for both countries, according to the Kiel Institute (https://www.kielinstitut.de/publications/news/trade-agreement-eu-india-could-increase-bilateral-trade-by-up-to-65-percent/, https://www.kielinstitut.de/fileadmin/Dateiverwaltung/IfW-Publications/fis-import/82e3902e-610e-46e7-9176-83e37af0d5ab-KPB202.pdf ).

However, India is not a country where business deals easily and quickly can be accomplished. The Indian business culture is very different from the European. This should be sincerely considered by European business people.

Below, I put together some articles on India that I have written in recent years :

“India – the next global superpower” – https://blogg.lnu.se/china-research/?p=3671 (2025)

“India – Modi wants to win the election and act as the voice of the South” – https://blogg.lnu.se/china-research/?p=3524 (2024)

“ India isn’t easy to analyze and deal with” – https://blogg.lnu.se/china-research/?p=3501 (2024)

“My impressions from (studying) India”- https://blogg.lnu.se/china-research/?p=3421 (2023)

Hubert Fromlet
Affiliate Professor at the School of Business and Economics, Linnaeus University

China’s dual economy – will it change?

January 19, 2026

China’s economy remains in many respects a peculiar conundrum. Obvious domestic and global ambitions both politically and economically are unfortunately not supported by transparency. For this reason, there is no way for foreign and Chinese economists to predict how China can make its dual economy to change successfully in the future. All we know is the fact that China – sooner or later – will have to meet substantial challenges that cannot be hidden forever despite probable and sizeable progress in certain technological areas which will develop even stronger in the foreseeable future.

The character of China’s dual economy

A dual economy is characterized by the existence of two strongly different parts in the economy, consisting of a promising and a lagging one. Criteria in this respect can be tech and innovation standards, productivity, wage levels, international competitiveness, etc. Important insights about the phenomenon of a dual economy in developing countries were launched already in 1954 by the future Nobel Prize winner from 1979, Arthur Lewis (see https://www.un.org/en/chronicle/article/w-arthur-lewis-pioneer-development-economics).

The research of Arthur Lewis remains interesting these days despite the fact that his modeling seems to be very theoretical and not completely applicable in reality. Thus, most experts do not share all his assumptions and conclusions. But we can learn a lot from Lewis about the general phenomenon of a dual economy also when we look at an emerging country like China.

Lewis refers in his analysis of a dual economy to the existence of two different kinds of economic sectors, i.e. lagging agriculture and promising manufacturing. The first one with low productivity and weak innovation and the second one with promising innovation, productivity and international competitiveness.  

Similarities with China are definitely in place. Also China has a clearly lagging sector with insufficient productivity and competitiveness (the traditional economy) and at the same time a productive sector with an innovative development of internationally competitive products (the modern economy).

Thus, we come to the big question whether the shift from the traditional economy to the modern economy can be too complicated for creating new Chinese GDP-growth potential with sufficient new jobs.

Will China be able to overcome its current dual economy?

The theory of a dual economy still can be applied generally to many emerging countries when considering the general phenomenon of a lagging and a future-oriented/promising economic sector. On the one side, the lagging sector in China is represented by the big number of unprofitable and subsidized state-owned companies and, on the other side, the promising sector by high-tech development and production. The Lewis model is interesting also in a Chinese context  since it reflects a model of structural change which describes the development from a traditional economy to a modern one. This is exactly the theoretical ambition of Chinese political leaders.

But when joining the conclusions of Lewis in a realistic and applied way, one has to raise the question to what extent the transformation of the less skilled labor force to the advanced high-tech sector will succeed sufficiently in order to increase China’s overall productivity plus income levels and, consequently, total GDP growth on trend. And if this should become the case, one has to raise serious doubts whether Chinese cities – where most of modern production is located – will be able to accommodate increasing numbers of migrant workers from the lagging areas. Or could it be the case that excess labor-force capacity already largely can be found in major urban areas?

The official Chinese sectoral model – can it succeed?

In practice, China obviously does not use the Lewis model. At least I have not found any official hint in such a direction. Instead, Chinese leaders try to stick to what officially is called “the dual circulation model”, aiming at creating a more independent economy. President Xi has been defining this approach as a strategy towards “internal circulation”, meaning increasing reliance on domestic development and production and a kind of decreasing dependence on imports of overseas technology and markets while maintaining global competitiveness and trading (“external circulation).

In other words: No one can claim that the Chinese plan and act without long-term strategic ambitions. The question is rather whether the Chinese version of a dual strategy has a chance to succeed. I have my doubts though it theoretically should not be impossible.

However, the number of economic imbalances seems to be too comprehensive. Major remaining problems are, for example, demography, the real estate sector, public and private indebtedness, bad loans, state control in areas like innovation, education and SoE:s, insufficient institutional conditions when it comes to the financial system and transparency and – at least for quite some time in the future – shortcomings in employment / consumer confidence and possibly continuous protectionist threats.

Finally – not to forget: Psychological support by the Chinese people will be badly needed as well. This will be necessary to manage the important challenge to achieve the strived contribution of private consumption to stronger domestic growth.

But will psychology be treated as an important policy parameter?

Hubert Fromlet
Affiliate Professor at the School of Business and Economics, Linnaeus University