KEY TAKEAWAYS
- China–India relations remain complex:
- Diplomatic engagements, such as Modi–Xi meetings, have not resolved core disputes.
- Ongoing border tensions, strategic alliances (Quad), and China–Pakistan cooperation create a high-risk geopolitical environment.
- Chinese AI gains global traction:
- Chinese AI models entered the global top 10 for the first time, narrowing the performance gap with the U.S.
- AI export strategy targets developing economies and Belt and Road Initiative (BRI) participants, extending China’s geopolitical influence through technology.
- Economic involution (nei-juan) pressures:
- Internal overcompetition and overcapacity (e.g., solar panels) reduce profit margins, stifle innovation, and increase societal stress.
- The Chinese government is intervening to curb excess competition and restructure domestic markets.
- Strategic implications for India:
- Building domestic AI capabilities is critical to maintaining technological autonomy.
- China’s production limits create opportunities for Indian industries, especially in steel and aluminum, to expand market share and profitability.
- Future scenarios (2026–2035):
- Chinese technological hegemony: China dominates AI, putting pressure on India’s strategic autonomy.
- Technological bipolarity: India and China develop competing technological ecosystems.
- Fragmented competition: Economic involution in China and scaling challenges in India allow other global players to gain market share.
- Interconnected dynamics:
- Domestic economic pressures in China drive export-focused strategies like AI proliferation.
- The interplay of technology, economy, and geopolitics will shape the “Asian Century” and global power balance.
The twenty-first century finds its geopolitical compass pointing firmly towards Asia. Here, a fascinating interplay of ancient rivalries, burgeoning technological prowess, and internal economic complexities shapes not only regional dynamics but also the broader global order. This analysis delves into three pivotal aspects of this evolving landscape: the intricate relationship between China and India, the ambitious global reach of Chinese Artificial Intelligence, and the peculiar phenomenon of economic involution within China.
Understanding these elements in concert offers a clearer perspective on the forces at play, revealing how seemingly disparate threads weave into a coherent, if often contradictory, tapestry of influence.
Diplomatic theater and hidden tensions
The relationship between China and India presents a masterclass in diplomatic complexity. It is a curious blend of historical baggage, economic necessity, and strategic competition. Recent high-level engagements, while outwardly cordial, reveal the deep-seated fissures that continue to define this crucial bilateral bond.
Prime Minister Narendra Modi’s recent visit to China, his first in seven years, was widely touted as a significant step towards ameliorating strained ties. President Xi Jinping reportedly extended an invitation for a joint “dance of the Dragon and the Elephant,” suggesting that long-standing territorial disputes should not impede their broader relationship. Yet, the true measure of diplomatic sincerity often lies in what remains undone. Modi’s conspicuous absence from the military parade in Beijing, a grand spectacle commemorating the 80th anniversary of the end of World War II, was telling. As one analyst noted, Modi’s decision not to attend was no mere scheduling matter; it exposed the deeper strategic fissures lurking beneath the polite façade.
Limited progress at the SCO summit
Further illustrating this cautious engagement, the August 2025 meeting between Modi and Xi Jinping on the sidelines of the Shanghai Cooperation Organization (SCO) summit in Tianjin marked another attempt at diplomatic dialogue.
However, despite China’s efforts to capitalize on growing tensions between India and the Trump administration—particularly following harsh U.S. tariffs on India—fundamental disagreements remain unresolved. The meeting produced limited concrete outcomes beyond the resumption of religious pilgrimages to Kailash Mansarovar in Tibet and the restart of direct flights suspended during the pandemic.
Border disputes and the Pakistan factor
Despite diplomatic pleasantries, the specter of unresolved border disputes in the Himalayas looms large. The Galwan Valley clashes in 2020 marked the most severe escalation of border tensions in over four decades, fostering an environment of persistent strategic distrust. India’s strategic alignments, particularly its participation in the Quad Group, are viewed by China with suspicion, often interpreted as part of a broader strategy to contain its regional ambitions.
Adding to this complexity is the Pakistan factor. China’s “iron brotherhood” with Pakistan has evolved into direct military support, with Beijing providing targeting, surveillance, and electronic warfare capabilities against Indian forces during recent conflicts. This marks the first time China has directly supported Pakistani military operations against India, intensifying fears of a two-front war scenario.
Economic asymmetry and trade dependencies
Economically, the China–India relationship is marked by a notable asymmetry. Bilateral trade reached a record $136.2 billion in 2023, yet India faces a substantial trade deficit and a growing reliance on Chinese industrial imports. This raises legitimate concerns regarding India’s vulnerability to potential economic coercion during periods of heightened geopolitical tension.
Consequently, India actively pursues policies to bolster its domestic manufacturing capabilities, seeking to reduce its dependency and position itself as a viable alternative in global supply chains.
Chinese AI exports: The digital Silk Road
China’s rapid advancements in Artificial Intelligence have propelled it to a prominent position on the global technological stage. Its AI export strategy is characterized by an assertive drive for international expansion, particularly into developing economies, even as it navigates the intricate web of geopolitical challenges, most notably the stringent export controls imposed by the United States.
The U.S. has implemented rigorous export controls on advanced semiconductors, aiming to impede China’s AI development. However, Chinese AI firms have demonstrated remarkable resilience, responding with architectural innovation and by embracing open-source solutions to circumvent the bans. This adaptive ingenuity has sparked debate regarding the long-term efficacy of such controls, with some analysts contending they could inadvertently foster self-sufficiency within China.
Chinese AI models enter global top 10
Recent developments in September 2025 have dramatically validated China’s AI strategy. For the first time, Chinese AI models have entered the global top 10 rankings, with Alibaba’s Qwen3-max-preview achieving sixth place globally and Moonshot AI’s Kimi-K2-0905 tying for eighth position. This breakthrough represents a dramatic narrowing of the performance gap between Chinese and U.S. AI models, shrinking from 103 points in January 2024 to just 23 points by February 2025. The achievement is particularly remarkable given that China produces fewer total models than the U.S.—15 notable AI models in 2024 compared to America’s 40—suggesting a strategic focus on quality and efficiency over quantity.
The rivalry between the United States and China over artificial intelligence has evolved from a race for technological superiority into a contest over global governance, digital standards, and the future architecture of the internet. While the U.S. has largely focused on containing China’s rise through export controls and bolstering its domestic industry, Beijing is pushing a competing vision rooted in multilateralism, open access, and a strong appeal to countries in the Global South. Washington’s export restrictions on advanced semiconductors have had unintended consequences, helping spark a dual-track response from Beijing: the emergence of black-market smuggling networks for restricted chips and an acceleration of domestic innovation at a pace few anticipated.
Global expansion and ecosystem growth
China’s national AI strategy is unequivocally global in its aspirations, with a concerted effort to expand its AI footprint internationally, particularly in low- and middle-income countries, many of which are participants in its Belt and Road Initiative (BRI). Leading Chinese tech behemoths like Huawei, Tencent, and Alibaba are spearheading this expansion, focusing on cloud computing and AI infrastructure. The explosive growth of China’s AI ecosystem is evident in the numbers: from 1,454 AI companies in 2020 to over 5,000 currently—equivalent to roughly one new AI company launching every 11 hours. China now holds 70% of global AI patents as of 2023, indicating substantial intellectual property development alongside this massive ecosystem expansion.
While Western AI tools are widely adopted, there is a growing interest in Chinese solutions, particularly in regions where these companies have established a strong presence. This assertive expansion, a testament to China’s technological prowess, will undoubtedly exert a profound influence on future economic and geopolitical dynamics.
Economic involution: The internal strain
Economic involution, or nei-juan (内卷) in Chinese, describes a phenomenon where increasing inputs yield diminishing returns. It represents a system of escalating, often self-defeating, competition that stifles genuine progress, trapping entities in a cycle of overwork and stress without proportional gains. This concept has gained significant traction in discussions about China’s economic and social landscape.
In recent months, nei-juan has become one of the most important buzzwords in Chinese policymaking circles, rising to become a central priority for Beijing’s leadership. The July 30, 2025 Politburo meeting identified combating involution as one of three main priorities for the second half of 2025, alongside boosting domestic consumption and supporting the real estate market. China’s top economic planner vowed to intensify its crackdown on “involution,” pledging to curb disorderly corporate competition, rein in wasteful investment, and standardize local governments’ business attraction practices.
Structural roots and economic drivers
The core of involution lies in intense competition for limited resources, often driven by overcapacity. This leads to a paradoxical situation where greater effort fails to produce better outcomes. Drawing from anthropological theory, it is a process of “inward overelaboration,” where systems become more complex internally without generating external expansion or societal advancement. For individuals, it manifests as feelings of being overworked and trapped, creating a zero-sum “race to the bottom.”
The roots of the current involution crisis lie in China’s response to the property bubble collapse of 2021–22. As real estate investment plummeted, Beijing engineered a massive shift of investment flows from property to manufacturing to maintain GDP growth. This acceleration in manufacturing investment was not planned around any expected acceleration in Chinese or global demand but was determined mainly by the need to keep investment growth from dropping. The surge disproportionately affected “strategic” industries that Beijing had identified as the “new three”—solar panels, electric vehicles, and batteries.
Visible impacts and broader consequences
The solar panel industry exemplifies the devastating effects of involution. Chinese manufacturers now account for roughly 95% of global supply—approximately twice global demand. Capacity utilization dropped to below 40% in 2025, with producers forced to sell below variable costs. In the first half of 2025 alone, China added 212 gigawatts of new solar capacity, more than double the amount added in the first half of 2024.
The pervasive nature of involution carries several significant consequences. It stifles innovation, as competition revolves around incremental gains rather than disruptive breakthroughs. It also reduces profit margins, making it difficult for businesses to invest in future growth. The constant pressure has profound negative impacts on the mental health of the population, particularly younger generations. Recognizing these detrimental effects, the Chinese government has begun to intervene with policies aimed at reducing excessive competition and addressing structural overcapacity.
Future scenarios and strategic implications: 2026–2035
The convergence of technological advancement, economic restructuring, and geopolitical competition creates several distinct scenarios for the coming decade, each with profound implications for regional and global power dynamics.
China’s AI dominance timeline: The path to technological supremacy
China’s AI strategy follows a meticulously planned trajectory with specific milestones that will reshape global technological leadership. By 2027, Beijing aims to achieve 70% AI integration across six key domains, including next-generation smart terminals and intelligent agents. This ambitious target represents more than mere technological adoption—it signals a fundamental transformation of China’s economic infrastructure. The timeline accelerates dramatically by 2030, when AI integration is projected to exceed 90%, establishing the “intelligent economy” as China’s primary growth driver. The ultimate goal, a fully intelligent economy and society by 2035, positions China to potentially leapfrog traditional economic models entirely.
The implications extend far beyond domestic transformation. China’s AI industry, currently valued at $70 billion with over 4,300 companies, is expected to expand its core value to $140 billion while boosting related sectors to $1.4 trillion by 2030. This represents a twenty-fold multiplier effect that could fundamentally alter global economic hierarchies. The focus on AI-powered robotics, digital twins, and intelligent quality inspection systems suggests China is positioning itself not merely as a technological competitor but as the architect of the next industrial revolution.
India’s strategic response: Navigating the AI gap
India faces a critical juncture in its Artificial Intelligence development, with recent analysis revealing both significant challenges and unique opportunities. The country’s AI initiatives suffer from a fundamental scaling problem, with most projects remaining trapped at the proof-of-concept stage due to systemic bottlenecks. Only 13% of Indian organizations maintain dedicated AI talent pools, while 62% require substantial improvements in data governance and privacy policies. This infrastructure deficit becomes particularly acute when considering that India—despite being the leading global user of ChatGPT (13.5% of all monthly active users)—has struggled to develop competitive indigenous alternatives.
However, India’s mobile-first, app-based consumption pattern presents distinctive advantages. The country also ranks as the third-largest user of the DeepSeek mobile app (6.9% of global users), behind China (33.9%) and Russia (9.2%), but ahead of United States (4.4%) and Indonesia (3.5%), demonstrating its significant appetite for AI-powered applications. The challenge lies in translating this demand into domestic innovation capabilities. India’s strategy must focus on developing downstream applications for critical social sectors and underserved multilingual populations—areas where localized solutions could provide competitive advantages over global platforms.
The geopolitical implications are substantial. As China advances toward AI supremacy, India’s ability to develop indigenous capabilities will determine whether it becomes a technological dependency or maintains strategic autonomy. The window for establishing competitive AI infrastructure is narrowing rapidly, making the next three years critical for India’s long-term technological sovereignty.
Economic involution’s geopolitical consequences: The reshaping of global markets
China’s anti-involution campaign will create ripple effects across global supply chains and competitive dynamics. The planned reduction of steel output by 50 million tons in 2025 represents an 8.5% cut that will fundamentally alter global pricing structures. Indian steel producers are projected to see EBITDA increases of 3–9% during FY26E–FY28E as Chinese supply constraints create pricing power.
The strategic implications extend beyond commodities. Reliance Industries, identified as the “largest beneficiary” of China’s anti-involution focus, exemplifies how Chinese domestic restructuring creates opportunities for competitors. Morgan Stanley’s projection of 23% upside potential reflects expectations that reduced Chinese competition will allow other players to capture market share and improve margins. This dynamic suggests that China’s internal economic adjustments may inadvertently strengthen competitors, particularly in sectors like solar panels, where Chinese manufacturers currently control 95% of global supply despite producing twice global demand.
The aluminum market presents another case study, with China’s production cuts expected to support London Metal Exchange prices at $2,500–$2,600 per ton, benefiting companies like Hindalco and Vedanta through improved spreads. These second-order effects extend to banking and capital goods sectors, as reduced risk in funding metals, renewables, and EV ecosystems creates new investment opportunities.
Scenario analysis: Three potential futures
Scenario 1: Chinese technological hegemony (2027–2030)
If China successfully executes its AI integration timeline while maintaining anti-involution discipline, it could achieve decisive technological leadership. This scenario sees Chinese AI models dominating global markets, with the country’s 70% share of AI patents translating into standard-setting power. India would face increasing pressure to accept Chinese technological frameworks, potentially compromising its strategic autonomy.
Scenario 2: Technological bipolarity (2026–2035)
A more balanced outcome emerges if India successfully scales its AI initiatives while China’s involution challenges persist. This scenario features competing technological ecosystems, with India leveraging its mobile-first advantages and multilingual capabilities to create alternative platforms. The global economy becomes increasingly fragmented between Chinese and Indian-influenced technological spheres.
Scenario 3: Fragmented competition (2025–2030)
Economic involution proves more disruptive than anticipated, weakening China’s technological push while India struggles with scaling challenges. This creates opportunities for other players—potentially including revitalized American or European initiatives—to capture market share in the resulting vacuum. Global technological leadership becomes more distributed and contested.
Each scenario carries distinct implications for global governance, trade patterns, and security architectures. The trajectory chosen will largely depend on policy decisions made in the next 18–24 months, making this period crucial for shaping the next decade of Asian and global development.
Interconnections and future trajectories
The intricate interplay of China–India relations, the global proliferation of Chinese AI, and the internal pressures of economic involution paints a nuanced portrait of the evolving geopolitical landscape. These seemingly disparate elements are, in fact, deeply interconnected.
The phenomenon of economic involution within China can exert a significant influence on Beijing’s external policies. As domestic markets become saturated, there is a natural impetus to seek new avenues for growth and influence abroad. The push to export AI, for instance, can be seen not merely as a technological aspiration but also as a strategic response to domestic economic realities. This dynamic adds another layer of complexity to understanding China’s geopolitical behaviour.
The confluence of these trends shapes the narrative of the so-called “Asian Century.” The relationship between China and India will be a defining feature, and their ability to manage their differences will significantly impact regional stability. The proliferation of AI, particularly Chinese AI, raises fundamental questions about technological sovereignty and data governance. The September 2025 breakthrough of Chinese AI models into global top rankings signals a potential shift in the technological balance of power, with implications extending far beyond mere commercial competition.
Ultimately, understanding these interconnected trends is paramount for comprehending the broader geopolitical shifts underway. The outcome remains uncertain, but the stakes are undeniably high.