The global geopolitical landscape is shifting rapidly, marked by political upheavals, economic uncertainties, and technological rivalries. China, too, has delivered seismic shocks, upending assumptions about its economic trajectory, technological ambitions, and global influence. Once a powerhouse of growth, it now faces sluggish consumer demand, deflation, and a deepening real estate crisis. Yet, at the same time, it is driving breakthroughs in artificial intelligence (AI), with DeepSeek challenging U.S. dominance by producing open-source models that rival top Western AI systems at a fraction of the cost.
The question is no longer whether disruptions will happen, but how to interpret them – and how to seize opportunities. How China manages these challenges, and how the region responds, will shape Asia’s future trajectory. Four key dimensions stand out to shape whether China in Asia will be seen as a bringing safety or contributing to the volatility: its geopolitical clout, an inclusive green transition, its new technological cooperation, and its challenging economic trajectory.
Geopolitical Clout: China’s Influence, Leverage, and Regional Balancing in Asia
China’s increasing engagement in multilateral institutions, economic agreements, and security dialogues signals a concerted effort to consolidate its leadership in the region. In 2024, China supported the expansion of BRICS, securing Indonesia as a new member, while also advancing Belarus’ integration into the Shanghai Cooperation Organization (SCO). Trade agreements like the Regional Comprehensive Economic Partnership (RCEP) have further strengthened China’s economic ties across Asia, reinforcing its role as a central economic partner.
Bilateral engagements have also intensified. China expanded its dominance as a trade partner; for example, trade with Vietnam alone increased by over 20 percent. Bilateral relations with India and Indonesia continued to improve significantly. China’s mediation of a Myanmar ceasefire highlights its evolving role as a security actor in Southeast Asia. At the same time, rising tensions in the South China Sea and military assertiveness around Taiwan remain sources of regional friction.
To maximize strategic opportunities, regional players should develop clear bilateral and minilateral strategies that leverage China’s regional ambitions for greater cooperation in areas like climate change, inclusive growth, and peacekeeping. Strengthening alternative institutions beyond the China-U.S. sphere, such as ASEAN, can provide a more balanced framework for engagement while fostering cooperation in trade, infrastructure, and sustainable development.
Countries like Australia, a key actor in the Asia-Pacific, navigate a complex role in balancing China’s regional influence. As a member of AUKUS and the Quad, it remains a strong security ally of the U.S., while its extensive trade ties with China, particularly in minerals and energy, position Australia as both a partner and competitor in the region.
China’s Green Paradox: Booming Opportunities, Emerging Dilemma
China’s rapid innovation in all green technologies has already reshaped global energy markets and industrial sectors. Its electric vehicle (EV) innovation has halved the market share of German automakers in China while BYD surpassed Tesla in sales in the fourth quarter of 2024. Meanwhile, China’s investments and progress in green hydrogen, green steel, and transition minerals continue to expand, bringing these sectors closer to competing with traditional technologies.
China aims to produce 200,000 tons of renewable hydrogen annually by 2025, alongside developing extensive hydrogen infrastructure and a green steel production capacity matching the combined output of the U.S. and Japan. Although green hydrogen or green steel are not yet cost-competitive, China’s rapid pace of green innovation could once again disrupt long-established value chains and displace industry leaders who fail to adapt to these shifting dynamics.
Currently, Western and some developing nations have responded to China’s green technology surge with new regulatory measures and formal trade complaints against its exports. The focus extends to critical mineral supply chains, including lithium and rare earths, where China controls between 40 and 100 percent of global processing capacity. Australia, along with Indonesia and the Pacific – home to some of the world’s largest critical mineral reserves – faces the challenge of balancing economic gains from China’s demand while striving to reduce dependence and enhance supply chain resilience.
Understanding the trajectory of China’s rapid green innovation is more crucial than ever for staying competitive and accelerating the green transition. Strengthening supply chains to mitigate trade disruptions requires diversifying export markets and investing in domestic processing capabilities. Collaborative research initiatives between China and other partners, including Australia and Japan, in green hydrogen and low-emission steel production can further drive innovation while maintaining economic and environmental priorities.
Technological Advancements: Beyond “Made in China 2025”
As China concludes its Made in China 2025 strategy, its focus has shifted toward self-sufficiency in critical technologies. AI is a key battleground, with Chinese company DeepSeek challenging Western dominance despite U.S. export controls on advanced chips. China is projected to invest over $1.4 trillion in AI development by 2030, further solidifying its role in the sector.
The semiconductor race remains a critical front in China’s technological ambitions. While U.S. restrictions have limited Beijing’s access to high-end chips, Chinese firms are adapting by optimizing lower-tier chips and developing smarter algorithms for AI applications. Additionally, China’s efforts to reduce financial dependency on the U.S. dollar have led to the growing internationalization of the yuan, particularly in BRICS-led trade mechanisms.
An exciting and often overlooked market where China has taken innovation and regulatory leadership is the “low-altitude economy,” a sector that is projected to reach $137 billion by 2025. Drone logistics and electric vertical take-off and landing (eVTOL) aircraft are no longer just futuristic concepts – China-based companies such as EHang and Xpeng Aeroht have already begun selling flying cars, priced at $280,000, with mass production set to start in 2026.
To drive regional competitiveness, Asia-Pacific nations must prioritize AI-driven advancements in education, healthcare – particularly in remote areas – and e-commerce to stay ahead in the global tech race. Strengthening collaborative technology alliances within the region can also help establish alternative semiconductor supply chains, increasing resilience against geopolitical disruptions.
Regional players might find the U.S. dollar becoming less dominant in regional trade, prompting economies to prepare for the growing influence of the Chinese yuan. Establishing regional digital payment frameworks that align with China’s initiatives while ensuring financial independence will be essential for maintaining economic flexibility and resilience.
Moreover, in the rapidly expanding low-altitude economy and other high-tech sectors, harmonizing regulatory frameworks across Asia will be essential. Standardized policies will enable safe and structured market growth, allowing regional economies to leverage, compete with, and cooperate on China’s technological advancements while maintaining control over critical sectors and standard-setting.
Economic Trajectory: Growth Amid Structural Challenges
China’s economic role in Asia remains critical, but its domestic and international challenges are mounting. Beijing has expanded investment in the region, securing over $20 billion in new projects in 2024. Yet, persistent issues – including the real estate crisis, local government debt, and deflationary pressures – cast uncertainty over long-term stability. The government’s preference for industrial stimulus over direct consumer-driven policies risks exacerbating overcapacity concerns while failing to drive sustainable economic recovery.
China’s record $992 billion trade surplus in 2024 highlights its export-driven resilience while revealing underlying vulnerabilities. U.S. tariffs and geopolitical pressures threaten its future growth, but China is likely to respond with measured actions, positioning itself as a steadfast defender of international trade. At the same time. China has successfully diversified its export markets, reducing reliance on Western economies – particularly in key industries such as solar, wind, electric vehicles, and batteries – and thus making U.S. tariffs increasingly less impactful on its trade strategy.
To navigate these shifts, Asia-Pacific nations should deepen regional trade cooperation through stronger RCEP mechanisms, ensuring that economic integration benefits all members equitably. Establishing a regional infrastructure investment fund could help utilize Chinese infrastructure prowess in local strategic sector development including renewable energy and digital connectivity. Additionally, developing a more coordinated Asia-Pacific consumer market strategy (e.g., through RCEP) would enhance access to China’s domestic economy while promoting reciprocal trade relationships, ensuring balanced economic benefits across the region.
Conclusion
We are living in an age of surprises, where both China and the United States are reshaping the global economic, technological, and geopolitical landscape, creating both risks and opportunities. These shocks are not isolated; they signal deeper structural shifts in global power, competition, and influence. In this environment, the real challenge is not just keeping up, but staying ahead – recognizing patterns, understanding their impact, and leveraging them strategically.
To navigate this uncertainty, Asia-Pacific countries must prioritize strengthening supply chain resilience by critically assessing vulnerabilities and diversifying trade and production networks to mitigate risks. At the same time, leveraging competitive advantages – such as infrastructure, manufacturing capabilities, and talent – will allow regional economies to position themselves as alternative hubs for innovation and production, benefiting from the shifting trade landscape and tariff pressures on China.
Beyond economic strategy, proactive engagement in shaping regional and global agendas will be crucial. By defining clear priorities in areas such as sustainable development and AI safety, aligning on shared regional interests, and collectively influencing global norms, Asia-Pacific nations can play a more active role in fostering constructive China-U.S. relations. Through these strategic efforts, the Asia-Pacific region can transform uncertainty into opportunity, ensuring long-term economic resilience and a stronger position in the global order.
