This study examines Japan’s labor shortage, tracing it from cyclical tightness in the early 1970s and the late-1980s/early-1990s bubble to a structural shortfall since the mid-2010s driven by the sustained contraction of the working-age population. Earlier episodes were demand-led and policy-induced (for example, the transition to a 40-hour work week), whereas today’s tightness is demographic in origin and therefore persistent. Chapter 2 details these dynamics and the underlying structural constraints.

To manage this challenge, Japan’s policy response combines mobilization of domestic labor—most notably rising participation by women and older workers—with an expanded intake of foreign workers. The foreign-resident population grew from roughly 2.09 million in 2014 to about 3.59 million in 2024, with rapid increases in Technical Intern Trainees and Specified Skilled Workers. These increases reflect domestic drivers—population aging and acute shortages in care, hospitality, construction, etc.—as well as international forces, including a surge in Asia-centered labor migration and policy shifts. Chapter 3 assesses Japan's policy efforts to engage women and older workers into the labor market, while Chapter 4 reviews the theory, history, and practice of international labor migration in Asia. Chapter 5 disaggregates Japan’s foreign-worker regime into three pillars—high-skilled channels, the Technical Intern Training Program, and the Specified Skilled Worker system—and evaluates their policy design, outcomes, and outstanding issues. Chapter 6 assesses integration through wages and social-insurance coverage as indicators of how well foreign workers are settling into Japanese labor markets and society.

This study sets out the following policy implications for Korea. For older workers, Japan’s experience shows the effectiveness of gradual, sequenced reform—phased extensions of employment guarantees—backed by targeted subsidies, sustained social dialogue, and flexible compliance options for firms. Firm-level transparency and action plans, combined with workplace redesign, childcare provision, and well-targeted grants, have helped lift women’s participation. On foreign workers, Japan and Korea should streamline its fragmented governance and build a more efficient architecture for lower-skilled pathways, with clear skill-progression ladders that link training and language support to advancement in wages and roles. Korea should also better leverage international students by smoothing school-to-work transitions and strengthening settlement support. Finally, Japan and Korea could co-lead rules-based cooperation with major sending countries to stabilize flows and alleviate persistent shortages.

Executive Summary

1. Introduction

2. Model

3. Data and Calibration

4. Assessing Debt Sustainability in the APEC Economies

5. Conclusion

References

Appendix
A. OLG Model and Calibration
B. Dynamics of the Debt-to-GDP Ratio
C. Additional Tables

In this paper, we estimate additional government expenditure used to reduce AI’s existential risk and assess public debt sustainability. Our most important policy-relevant finding is that even under the conservative assumption that government expenditure equals the maximum amount society is willing to sacrifice to mitigate AI risk, and that all such expenditure is financed by issuing sovereign bonds rather than raising taxes, government debt does not necessarily become explosive. Instead, in our benchmark scenario—where the growth-enhancing effect of AI is calibrated to the average of prior studies—the debt ratio remains sustainable for most APEC economies. We also find that, except for Russia, an additional AI-driven growth effect of 3.4–6.1% would suffice for debt financing to remain sustainable for many APEC economies. In particular, for the United States, the required effect is 3.8% or 4.6%, depending on parameter assumptions. For faster growing economies such as China and Korea, the required additional effect is even smaller than for the United States.

Executive Summary

1. Introduction

2. Informal Economy and Composition of ODA in the Philippines

3. Model

4. Macroeconomic Equilibrium

5. Results

6. Conclusion

References

We analyze how the size and composition of official development assistance (ODA) shape aggregate performance and informality in the Philippines using a small open-economy dynamic general equilibrium model with a formal and informal sector. Two main scenarios are considered: (i) an increase in total ODA and (ii) a higher share of tied aid, given a fixed amount of ODA. Both scenarios raise capital, output, and consumption in steady state, but through distinct mechanisms. The first scenario primarily increases demand and appreciates the relative price of informal goods, expanding informality. By contrast, the second scenario expands public capital, crowds in formal investment, lowers the relative price of informal good, and shifts resources toward the formal sector, despite short-run reallocation costs.

Executive Summary

1. Introduction

2. Theoretical Framework

3. Data

4. Methodology

5. Results

6. Discussion

7. Conclusion

References

Appendix

This paper investigates how environmental, social, and governance (ESG) conditions, together with economic factors, shape fertility dynamics in APEC economies. Using World Development Indicators from 1996 to 2021 and assembling more than 1,400 indicators, we predict annual changes in the crude birth rate. Models are trained on non-APEC economies and tested out of sample on APEC economies. Random Forest achieves the lowest RMSE at 0.397, and models that combine ESG and economic variables outperform those relying on economic indicators alone, with RMSE values of 0.271 and 0.298 respectively. SHapley Additive Explanations (SHAP) reveal that environmental factors are the most influential predictors of fertility in APEC, followed by governance, while social factors are smaller in magnitude but show increasing importance over time. Lag analysis indicates short-run effects for social and governance variables at one-year lags and medium- term cumulative effects for environmental variables, peaking around four years. Country-level profiles highlight clear heterogeneity: environmental drivers dominate in China and Russia, governance factors are most important in Korea and the United States, and social influences are stronger in Canada and Japan. The study provides a comprehensive, externally validated, and interpretable framework for fertility prediction, while emphasizing that the analysis remains predictive and associational rather than causal. We regard this as a first step toward more rigorous causal evaluation of the highlighted drivers.

Since the inauguration of Trump’s second term, U.S. trade policy has triggered profound changes in the global trading order. The United States, prioritizing the prevention of illegal immigration and drug trafficking as matters of national security, has implemented stringent trade measures such as the imposition of high tariffs and the renegotiation of bilateral agreements. These policies have amplified uncertainty across the external environment of Latin America, including Mexico and Brazil. The recent U.S. decision to impose a 50 percent retaliatory tariff on Brazilian products starkly illustrates the vulnerability of Latin American trade to policy volatility. Against this backdrop, the upcoming USMCA renegotiation in July 2026 is likely to become another critical variable for the region’s external relations and supply chain configuration.

Despite the rising geopolitical and geoeconomic importance of Latin America, the region remains relatively marginal within Korea’s trade strategy. Yet, the ascent of the Global South, the restructuring of supply chains, and the diversification of trade partners underscore Latin America’s growing strategic value and the urgency for Korea to pursue proactive and long-term policy responses.

In this context, Japan’s experience in Latin America provides meaningful insights for Korea. Japan has consolidated its presence by focusing on traditional manufacturing sectors such as automobiles, machinery, and chemicals, establishing dual hubs in Mexico and Brazil while simultaneously diversifying into markets such as Argentina and Chile. Japanese firms have strengthened localization strategies by responding proactively to policy changes, including Brazil’s “Mover” program and Mexico’s environmental regulations. In the resource sector, Japan has sought stable access to critical minerals such as lithium and copper through close government–business collaboration, supported by financial and policy instruments that helped mitigate risks.

This study investigates Japan’s industry- and period-specific entry cases and government support policies to derive policy implications for Korea’s Latin America strategy. The key recommendations are as follows:
First, strengthen government–business linkages to institutionalize supply chain restructuring support.

Second, emphasize reference-building at the initial stage of entry to establish a foundation for long-term growth.

Third, respond proactively to environmental and regulatory changes to build trust with local governments and turn compliance into a source of competitive advantage.

Fourth, maintain a Brazil–Mexico-centered strategy while expanding into Argentina, Chile, and Colombia to diversify regional risks.

Fifth, explore opportunities for joint ventures with Japan, particularly in strategic sectors such as minerals.

In sum, Japan’s experience highlights essential lessons for Korea to achieve stable and sustainable outcomes in Latin America under conditions of global trade uncertainty. Rather than merely replicating Japan’s approach, Korea should design tailored strategies that reflect the specific characteristics of Korean firms and the diverse demands of Latin American economies.

Recognizing changes in the global economic order and its severe dependency on foreign resources and technology, Europe is greatly invested in strengthening its economic security and further developing its industries. Consecutively, European governments have introduced policies to enhance the competitiveness of their advanced industries. This study identifies the status, strengths and weaknesses of European advanced industries, by examining the present conditions of advanced industries in Europe in terms of trade, R&D expenditure, and human resources, and also comparing the competitiveness in advanced industries with the US and China. Furthermore, it identifies the policy direction of the EU and the UK for advanced industries from the perspectives of promoting innovation and bridging the technological gap, expanding investment, and fostering a level playing environment. This study also reviews the key support policies and regulations for specific sectors in advanced industries, i.e., batteries, semiconductors, AI & digital industry, health & biotech, clean technology, and aerospace.

The following points were confirmed through this research. First, both the EU and the UK recorded trade deficits in items classified as high-tech industries, indicating extensive dependence on foreign sources in these fields. The EU’s R&D expenditure rate also turned out to be less than that of the US and China. While the number of jobs in advanced industries are likely to increase, the EU’s low projection for working-age population in the future indicates that this vacancy is not expected to be filled, unlike in the US and China. These statistics reaffirm the necessity and legitimacy of European policies aimed at enhancing competitiveness in the advanced industry. Second, the EU and the UK are pursuing multifaceted policies to strengthen competitiveness in advanced industries under the overarching goal of climate neutrality. The EU aims to meet more than 40% of its demand for climate-neutral technologies internally by 2030, seeking to reinforce clean-tech production capacity. Initiatives such as Horizon Europe, the Strategic Technologies for Europe Platform (STEP), and the EU Blue Card are being employed to address key challenges and labor and skill shortages. In accordance with its Modern Industrial Strategy (2025), the UK is planning to actively invest in key sectors - automobiles, aerospace, biotech, and clean energy - to stabilize supply chains. In terms of utilization of various funds, the EU is actively promoting Public-Private Partnerships (PPP) projects and investment guarantees via InvestEU, while the UK is significantly increasing investment to strengthen its industrial ecosystem. Furthermore, both the EU and the UK are working to foster fair competition and to expand international cooperation while building internal supply chains and pursuing supply chain diversification. Third, in key strategic industries, both the EU and the UK are simultaneously pursuing large-scale investments and regulatory reforms to drive green and digital transitions along with technological sovereignty. In the batteries sector, the EU is continuously investing in battery manufacturing within Europe, while advancing battery R&D and recycling systems. Meanwhile, the UK is focusing more on technological development and design cooperation. As for the semiconductors sector, the EU is aiming to engage across the entire value chain to address manufacturing vulnerabilities. Considering how the sector is so far dominated by Asian countries, establishing a strong position in batteries manufacturing remains challenging. However, the UK is maintaining a niche market strategy focusing on R&D, design, and IP. In the digital industries sector, such as AI and quantum technology, both the EU and the UK are pioneering regulatory and normative frameworks to challenge US-China technological leadership. Their policies target technological sovereignty and competitiveness through R&D and infrastructure development, with accompanying efforts to implement policies addressing carbon neutrality in the energy-intensive infrastructures. In the health and biotech sectors, the EU policy centers on supply chain stabilization, enhancing internal manufacturing capacities, regulatory streamlining, expanding clinical trial infrastructure, and strengthening the security of critical pharmaceutical supply chains. Clean energy technologies are being promoted through the Net-Zero Industry Act and the Clean Industrial Deal, aimed at strengthening local manufacturing capabilities for eight strategic technologies - including hydrogen, batteries, carbon capture and storage (CCS) - while reducing reliance on non-European countries. Large-scale joint investments and infrastructure development under the IPCEI initiative are actively in process in the hydrogen segment. Meanwhile, the EU maintains a strong position in the aerospace industry sector, mainly thanks to Airbus, while concurrently advancing research on sustainable aviation fuels (SAF) and improving aircraft efficiency. In space, major projects like Galileo and Copernicus are underway, and the EU Space Act has been proposed to secure global standard-setting leadership.

The key implications for Korea’s strategic engagement with the EU and the UK’s advanced industry policies can be summarized in three main points. First, in terms of investment, Korea should strengthen R&D and equipment investment in key sectors such as batteries, semiconductors, AI and quantum technology, while actively leveraging its associate membership in Horizon Europe to enhance networks and market access opportunities. Second, to improve the investment environment, Korea needs to introduce converged regulatory sandboxes and streamline approval procedures, as demonstrated by the EU’s One-Stop Shop model, to foster a competitive industrial ecosystem. Third, for broader cooperation, Korea may consider solidifying its global position in positive technology exposure and standardization processes by participating in public procurement projects and the Korea-EU digital, green, and security partnerships. It should also mitigate supply chain risks by easing upstream dependencies and strategically practicing mid- and downstream network collaboration. Furthermore, it is crucial to proactively respond to ESG regulations (such as the CSDDD) and solidify the foundation for long-term cooperation with Europe through talent exchange and joint research.

Carbon neutrality, as a long-term goal of the international community, can only be achieved through innovation in climate technologies. The scale of climate finance and clean energy investments has continued to grow, with new markets recently emerging through the convergence of climate technologies with other advanced technologies such as artificial intelligence (AI). In this context, this study focuses on the growth and global expansion of startups, which are key economic players capable of driving innovation in climate technologies. In the study, a climate tech startup is defined as an unlisted company established within the past 10 years that has innovative ideas or business models related to technologies contributing to greenhouse gas reduction or climate change adaptation. Based on this definition, the study examines not only the roles of government support in leading countries but also success stories of promising climate tech startups. It also analyzes the ecosystem for climate tech startups and the effectiveness of R&D support programs in Korea, ultimately deriving policy implications for Korea.

Chapter 2 analyzes the key strategies of major countries and promising climate tech startups. Across all the countries reviewed, governments are increasing financial support, encouraging private investment, and supporting networking hubs to connect climate tech startups with each other and other partner companies. In particular, Germany operates large-scale and long-term funds such as the DeepTech & Climate Fund (DTCF), targeting startups at the growth stage rather than those in the early phase. Japan offers incentives, including tax deductions, to encourage collaboration between startups and large corporations as well as investment from large corporations. On the other hand, the UK and the US, where the climate tech markets are largely driven by the private sector, operate specialized institutions for high-risk, high-reward technologies such as ARIA and ARPA-E. The UK promotes the commercialization of climate technologies through regional clusters and innovation networks, including Catapults and Living Labs. The US supports climate tech startups through initiatives like the Energy Program for Innovation Clusters (EPIC), which funds organizations within regional innovation ecosystems. Finland, where both the public and private sector are actively engaged, encourages startups to expand overseas from the early stages of their establishment.

Promising climate tech startups around the world are growing and expanding their businesses into global markets by leveraging various government support programs, attracting private investment, engaging in technology collaborations and partnerships, and capitalizing on the capabilities of their founders. For example, companies such as TBM and Sila Nanotechnologies have successfully utilized a range of government programs from the R&D stage to commercialization for their growth and international expansion. Climeworks and Ascend Elements have secured some of the largest investments in the industry by demonstrating operational success with facilities applying their own technologies and by leveraging government matching funds. Sunfire, Clean Planet, and Coolbrook have achieved successful demonstration and commercialization through strategic partnerships with corporations, universities, and research institutions. Meanwhile, Carbon Clean and 44.01 have developed distinctive business models driven by the leadership and technical expertise of their founders.

Chapter 3 explores the ecosystem and enabling environment for climate tech startups in Korea, along with an analysis of the effectiveness of government R&D programs. Climate tech startups in Korea account for only approximately 5% in terms of both number and total investment scale as of the 2015-2024 period. Over 70% of the total investment was concentrated in the early stages of investment (Series A and below), and the pace of investment attraction remains relatively slow. Notably, government support has led the growth of startups, while the investment shares of venture capital (VC) firms and corporate venture capital (CVC) entities remain comparatively low. Policies and institutional support for climate tech startups primarily focus on financial assistance and the development of a startup ecosystem. Through financial mechanisms such as the Climate Technology Fund, the government aims to stimulate private investment while strengthening the roles of technology demonstration platforms and regional innovation clusters including Green Convergence Clusters. In addition, programs supporting global expansion, such as an initiative to link the Creative Technology Solution (CTS) and Tech Incubator Program for Startup (TIPS), are recently being implemented.

In order to evaluate the effectiveness of the Korean government’s support for climate technology development, the study analyzed the five-year outcomes of R&D support programs implemented between 2016 and 2018. The analysis focused on major climate technologies, including renewable energy, energy efficiency, and hydrogen and ammonia utilization technologies, selected based on their potential for emission reduction and trends in national R&D investment. An AI-based deep learning classification model was used to identify participants in major climate technology R&D support programs. Propensity Score Matching (PSM) and Difference-in-Differences (DID) methods were then used to estimate the impact. The results indicate that the R&D support programs had a positive effect on the financial performance of both startups and small and medium-sized enterprises (SMEs), with a notably stronger and more sustained impact observed in startups compared to SMEs. However, innovation outcomes showed a temporary increase only among SMEs, whereas social outcomes such as job creation were not statistically significant.

Based on these findings, the study suggests policy directions necessary to effectively support climate tech startups in Korea. These include general strategic directions and stage-specific support strategies tailored to the R&D, demonstration, and growth/scale-up phases. Detailed implications for each are discussed below.

Above all, it is crucial to enhance the understanding of climate technologies while ensuring the continuity and consistency of policy frameworks. Achieving this objective requires adopting a balanced and comprehensive perspective on climate technologies. Moreover, it is important to recognize that the perceptions of firms and investors are likely to shift only when there is a credible assurance regarding the long-term sustainability of government policies. The positive impacts of major climate technology R&D programs identified in this study further underscore the importance of sustained support for climate tech startups.

By stage of technology development, the first priority in the R&D phase is to assess whether technology support adequately addresses the integration of different technologies and market demand, and to strengthen the role of universities. Evaluating whether existing policies sufficiently foster technological innovation through convergent approaches is crucial. From a market demand perspective, a detailed analysis should be conducted to identify which technologies are likely to attract significant investment incentives at specific points in time, and this information should be effectively utilized. In addition, measures to enhance incentives for university-based startup activities and collaborative research with external partners should be considered.

Second, in the demonstration phase, it is important to encourage early-stage startups to pursue global expansion and to support regional networks. Given that the Korean economy has high export dependency and a small climate technology market, overcoming these limitations requires strategies that promote consideration of overseas market entry from the initial stage of idea development, similar to the Finnish model. Furthermore, strengthening the role of regional living labs and facilitating the adoption of technologies validated within the region at relatively low cost should also be prioritized.

Finally, in the growth and scale-up phase, it is necessary to expand investment incentives for climate technologies and to support the strengthening of partnerships between firms. It is recommended that tax incentives for climate technology be introduced or enhanced to encourage participation from a diverse range of private investors. In addition, policy mechanisms should be developed to attract investment from well-capitalized firms and corporate venture capital (CVC) entities. For startups seeking global expansion, efforts to facilitate strategic partnerships with local companies in target markets should be further strengthened.

Global security conditions have become more uncertain than ever in recent years. In particular, the energy sector is experiencing rapid structural changes and a swift geopolitical realignment, while multiple factors—including the intensification of strategic competition between the United States and China, the prolonged Russia–Ukraine war, accelerated climate-change responses and energy transitions, and the launch of the second Trump administration in the United States—are intertwining to further deepen the instability of the international political order and the global energy market. Amid such a rapidly changing international environment, energy security is emerging as a core issue that combines national security, diplomatic strategy, and energy geopolitics. Against this backdrop, this study focuses on the strengthening cooperation between the Gulf Cooperation Council (GCC), regarded as a key region for global energy supply, and China, the world’s largest energy importer. China is actively promoting the development of its renewable energy industry and related technologies to mitigate its high dependence on external energy sources and to accelerate the transition toward a low-carbon society. The GCC, leveraging its immense fossil-fuel supply capacity, is simultaneously pursuing industrial diversification and energy transition, and in doing so is expanding its demand for external cooperation in the field of environmentally friendly energy. Accordingly, the two sides are forming a mutually complementary cooperative relationship in the areas of fossil energy and clean energy, rapidly deepening the scope and level of their cooperation.

South Korea also has a high dependence on energy imports, with a significant portion of those imports relying on the GCC. In this context, the expansion of energy cooperation between China and the GCC is highly likely to have direct and indirect impacts on South Korea’s energy security and its overall economy.

Accordingly, this study analyzes the current state of energy cooperation between China and the GCC amid changing energy-security and geopolitical conditions, and seeks to identify the characteristics of cooperation in each sector. Ultimately, it aims to draw policy implications that may serve as a reference for establishing South Korea’s diplomatic relations and energy-cooperation strategies with the GCC.

Before examining the current state of energy cooperation between China and the GCC, Chapter 2 categorizes and outlines changes in the global environment surrounding the two sides into four areas: shifts in U.S. and Chinese influence within the GCC; fragmentation of global supply chains and restructuring of energy supply chains resulting from the Russia–Ukraine war; energy-transition trends driven by climate- change response; and the energy policies of the second Trump administration in the United States. First, recent U.S. and Chinese influence within the GCC has shown contrasting patterns. The United States has long maintained a strategic relationship with the GCC centered on its role as a security provider, but after the 9/11 terrorist attacks and the Iraq War, it came to recognize the costs and limits of involvement in the Middle East. As a result, a trend has continued in which it gradually reduces its engagement and reallocates diplomatic and security resources to Asia and other regions. Above all, the rise in U.S. energy self-sufficiency brought about by shale-oil development has accelerated the reduction of U.S. involvement in the Middle East. In contrast, China has been steadily expanding its strategic presence in the GCC by strengthening cooperation in trade, infrastructure development, and advanced technologies, based on economic growth, rising energy demand, and the Belt and Road Initiative. Meanwhile, Russia’s invasion of Ukraine in 2022 has made the trend of supply-chain fragmentation particularly evident in the energy sector. Europe rapidly reduced imports of Russian crude oil and natural gas and strengthened its energy linkages with the United States and other allies. China’s expansion of energy imports from Russia, followed by increased imports from the GCC, is also aligned with this supply-chain restructuring trend. At the same time, the international community is pursuing a structural transformation of energy systems and the expansion of renewable energy to address the climate crisis and achieve carbon-neutrality goals. As of now, during this transitional phase of energy transformation, fossil fuels and clean energy sources coexist, and available energy sources such as LNG and nuclear power are being utilized as transitional energy resources. Nonetheless, as of 2024, fossil fuels still account for more than 80% of primary energy consumption. Accordingly, in the short term, competition to secure oil and natural gas is expected to unfold alongside the continued dual challenge of meeting carbon-reduction targets. Finally, since taking office, the second Trump administration has been swiftly pushing policy changes in the fields of energy and climate. In particular, the dismantling of the previous Biden administration’s clean-energy and carbon- neutrality policies has heightened uncertainty and change in the renewable-energy sector and in climate-change response. This has led to concerns about delays in U.S. carbon-neutrality efforts and a weakening of U.S. climate leadership within the international community. In addition, the second Trump administration is strengthening foreign sanctions, including in the energy sector, and these sanctions are exerting direct and indirect impacts on energy-cooperation relations between China and the GCC.

In Chapter 3, the study examines areas of mutual cooperation demand by outlining the energy-policy directions of China and the GCC. China has long regarded energy security as a core national-security task, as its external dependence on crude oil and natural gas has grown steadily. With its high dependence on external energy sources, China requires not only stable energy procurement but also strategic cooperation partners in the field of clean energy. In this context, cooperation with the Middle East—especially with the GCC countries—is essential for both strengthening China’s energy security and advancing its clean-energy transition. China’s energy cooperation with the GCC extends from ensuring stable supplies of traditional energy sources such as crude oil and natural gas to strategic-level cooperation needs encompassing joint development of renewable energy, hydrogen, nuclear power, and advanced energy technologies, as well as efforts to promote yuan-based settlement in energy trade. In addition, China seeks to build a mutually beneficial energy partnership by linking the Belt and Road Initiative with the development strategies of GCC countries. In short, the GCC, with its abundant energy resources and potential for renewable-energy development, is an indispensable cooperation partner for China’s energy security and energy transition, while also serving as a region that plays an important role in expanding China’s influence in the Middle East amid U.S.–China strategic competition. Meanwhile, the GCC is strategically expanding cooperation with China to secure stable energy export markets and strengthen capabilities for developing next-generation energy sources. As the world’s largest energy importer and a technological powerhouse with geographical proximity and strong infrastructure investment capacity, China is viewed by the GCC as an ideal partner.

In Chapter 4, based on the analyses in Chapters 2 and 3, the study describes the current status and characteristics of energy cooperation being pursued by China and the GCC, categorizing it into fossil fuels, petrochemicals, renewable energy, hydrogen, and nuclear power. First, an examination of China’s crude oil and LNG import trends over the past five years shows that it has maintained solid supply relationships with Saudi Arabia (crude oil) and Qatar (LNG). In the case of crude oil, China procures 30–40% of its total imports from the GCC, and while Russia and Saudi Arabia have alternated as China’s largest suppliers, imports from Russia increased after the onset of the Russia–Ukraine war in 2022 due to price competitiveness and geopolitical factors, but began to decline in the first quarter of 2025. By contrast, amid U.S.–China tensions and the suspension of U.S. crude oil imports, imports from Saudi Arabia saw a slight increase in the first quarter of 2025. China’s crude oil import volumes and supply sources have been changing in connection with various geopolitical variables. The volumes imported from major supplying countries have shown fluctuations over time due to multiple factors, including U.S. sanctions on major oil-producing countries, the Russia–Ukraine war, and U.S.–China trade tensions. In the case of LNG, China is pursuing a stable procurement strategy through long-term purchase agreements with Qatar and participation in investments in the North Field expansion project, and the LNG supply relationship between the two countries is expected to continue over the long term. Moreover, the expansion of LNG cooperation between China and the UAE is also noteworthy in terms of diversification of import sources and strengthening energy security. In this way, energy trade between China and the GCC shows a pattern in which mutual interdependence and strategic cooperation are becoming further reinforced as part of managing geopolitical risks and ensuring energy security.

China and the GCC are also pursuing industrial diversification and energy transition by forming mutually complementary cooperation structures in the petrochemicals, renewable energy, hydrogen, and nuclear-power sectors. In the petrochemical sector, large-scale cooperation projects are being promoted in both China and GCC countries. China, in response to slowing oil demand resulting from the expansion of new-energy vehicle adoption and the downturn in the real-estate market, is reducing the production of refined petroleum products and expanding the production of high-quality chemical products. The GCC, for its part, seeks industrial diversification through the development of the petrochemical industry. GCC countries display a tendency to use renewable energy to generate domestic electricity while exporting crude oil and LNG to maximize overseas sales profits. Although GCC countries have strong ambitions to achieve carbon- neutrality goals and expand renewable-energy development, the renewable-energy industry within the GCC remains in an early stage, making infrastructure development particularly important. From the perspective of GCC countries, strategic cooperation with China—which leads the global renewable-energy supply chain—is highly important. The GCC’s installation capacity in the area of renewable energy is rapidly expanding, with demand for solar power sharply rising. China currently dominates the global photovoltaic manufacturing supply chain, and is actively targeting the GCC as a strategic market amid U.S. and European import restrictions and pressures stemming from oversupply. Cases of solar-power projects in GCC countries involving Chinese participation show that China is pursuing the establishment of local solar-product manufacturing bases and the export of solar products. In the renewable- energy development goals of the GCC, wind power is also recognized as a key generation source, with wind-power capacity expanding mainly in Saudi Arabia, the UAE, and Oman. As one of the world’s largest exporters of wind-power equipment, China is cooperating with major GCC countries in various forms. Chinese companies not only supply key equipment but also undertake EPC roles in wind-power projects and, through the establishment of joint ventures, promote the manufacturing and assembly of key components locally within the GCC.

Cooperation between China and the GCC in the hydrogen sector can be understood as focusing primarily on green-hydrogen cooperation linked to renewable energy. GCC countries, with their abundant renewable-energy resources, and China, with its large-scale production facilities, technological capabilities, and research capacity, form a mutually complementary cooperation structure. Based on its large-scale facilities, technological strength, and research capability, China is pursuing various cooperative projects in hydrogen and related industries with GCC countries such as Oman. In the nuclear-power sector, China regards Saudi Arabia and the UAE as key partners and is pursuing cooperation on intergovernmental agreements, reactor operation, fuel supply, personnel training, uranium and thorium exploration, as well as nuclear safety and public security. In 2025, China and the GCC held the “First China–GCC Forum on the Peaceful Use of Nuclear Technology,” during which they discussed next- generation nuclear technologies such as SMRs, workforce development, technical exchange, and potential joint projects. Meanwhile, China and the GCC are strengthening their strategic partnership by achieving their mutually complementary goals of energy security and industrial diversification through the Belt and Road Initiative. China views the GCC as a key cooperation partner in the Belt and Road Initiative and has pursued cooperation in energy trade and energy-infrastructure development. Each GCC country is also seeking economic diversification and energy transition by linking its national development strategy with the Belt and Road Initiative. China emphasizes Belt and Road cooperation with countries around the world, but the GCC is regarded as a particularly important partner in terms of building a strategic partnership to respond to U.S.–China strategic competition, strengthening China’s influence in the Middle East, and consolidating energy cooperation.

Lastly, Chapter 5 evaluates and forecasts energy cooperation between China and the GCC and presents implications for South Korea. Amid multiple external factors—such as recent changes in the global geopolitical environment, transformations in energy structures, the Russia–Ukraine war, and U.S. sanctions in the energy sector—energy cooperation between China and the GCC has developed into a mutually complementary relationship. Based on the analysis in the main text, the evaluation and outlook for China–GCC energy cooperation can be summarized as follows. First, from China’s perspective as the world’s largest energy importer and a country that prioritizes energy security above all, the GCC is a strategic partner possessing not only abundant crude oil and natural gas resources but also significant potential in renewable energy sectors. Second, amid uncertainty in the global energy supply chain following the outbreak of the Russia–Ukraine war, mutual interdependence between China and the GCC has deepened. From the perspective of securing stable export and import markets for crude oil and LNG, the strategic interests of China and the GCC align. Accordingly, the two sides have built a mutually stable energy-supply relationship amid geopolitical risks and volatility in the global energy market. During the transitional phase of energy transformation, the fossil-fuel supply relationship between China and the GCC is expected to continue for the time being. China has been reducing its imports of U.S. energy due to factors such as the tariff war with the United States, and the GCC’s energy exports to China are expected to further expand as a result. Third, cooperation between the GCC and China in the clean-energy sector has deepened as the GCC seeks industrial diversification alongside efforts to transform its current energy structure. Chinese solar and wind companies are actively participating in local power-plant construction, equipment supply, technological cooperation, and ecosystem development within the GCC. Meanwhile, due to U.S. sanctions targeting China’s renewable- energy sector, China’s demand for cooperation with the GCC is expected to grow further from the perspective of market and production-base diversification. Fourth, while U.S. influence within the GCC is declining, China has been strengthening comprehensive cooperation with the GCC. As long as China’s demand for fossil-fuel imports and the GCC’s demand for development in the clean-energy sector continue, cooperation between the two sides is highly likely to deepen. However, the GCC faces the need to pursue balanced diplomacy between the United States and China due to issue-specific interests and strategic considerations, such as foreign-policy and security concerns and the pursuit of economic pragmatism. Taken together, energy cooperation between China and the GCC is expected to continue for the time being in line with their strategic needs, but the pace of cooperation may vary by energy sector depending on external variables such as the degree of U.S. engagement in the Middle East under the second Trump administration, the pattern of U.S.–China strategic competition surrounding the GCC, the Russia–Ukraine war, and the political situation in the Middle East. Recently, the GCC has shown a tendency to strengthen cooperation with the United States to foster its AI industry, and the United States is requesting the exclusion of China in AI cooperation. From the perspective of the GCC, which seeks to promote convergence between the AI and energy sectors, it will be necessary to observe the extent to which it will continue energy cooperation with China in the future. It is also noteworthy that GCC countries, which have so far relied primarily on Chinese renewable- energy products and technologies, are making efforts to localize renewable-energy component manufacturing to reduce dependence on a single supply source.

South Korea relies on the GCC for a significant share of its crude-oil imports and ensures supply stability through measures such as joint crude-oil stockpiling projects. In addition, by expanding cooperation with the GCC across the energy sector—including refining and petrochemicals, clean energy, hydrogen, and nuclear power—South Korea is enhancing its energy security and industrial competitiveness while also contributing to the attraction of foreign investment. Accordingly, the GCC is a highly important strategic partner for South Korea. Based on the current status and characteristics of China–GCC energy cooperation analyzed in the main text, this study presents the following implications for South Korea. First, the Korean government needs to build a relationship of trust with GCC countries from a longer-term perspective and establish cooperation platforms for this purpose. Second, it is necessary to pay attention to the possibility that the GCC may pursue strategies to reduce its dependence on China- centered renewable-energy supply chains and diversify its cooperation partners. From this perspective, South Korea can explore opportunities for cooperation with the GCC. Third, in the refining and petrochemical sectors, South Korea should concretely explore cooperation strategies and ways to establish long-term partnerships that differentiate it from China in areas where it is currently cooperating with the GCC. Strengthened strategic cooperation between China and the GCC through joint projects underway in both China and GCC countries may increase risks for South Korea’s petrochemical industry, which is currently experiencing difficulties. To respond to the complex risk factors that China–GCC cooperation may pose to South Korea’s domestic industry, it is essential to monitor cooperation trends between the two sides while actively formulating measures to enhance South Korea’s competitiveness. Fourth, in the solar-power sector, South Korea may consider: ① entering the U.S. market more actively, where Chinese products are excluded; ② supporting Korean firms’ entry into the GCC in the premium-product segment of the small-scale solar-power market; and ③ pursuing cooperation in which Korean companies participate as project developers in GCC solar-power projects while considering Chinese companies as joint developers or selecting Chinese firms as EPC contractors. Fifth, based on the UAE’s achievement of being the first GCC country to commercialize nuclear-power generation through cooperation with Korea Electric Power Corporation (KEPCO), South Korea should actively enter new nuclear-power markets in the GCC, such as Saudi Arabia. Although China is expanding its cooperation base in the nuclear-power sector by strengthening its strategic partnership with the GCC, South Korea has comparatively strong competitiveness in terms of winning and completing nuclear-power projects. Chinese firms are also expected to bid on Saudi Arabia’s nuclear-power project, and South Korea needs to observe China’s nuclear-cooperation trends with the GCC from various angles. In addition, as major GCC countries are paying close attention to the SMR sector, South Korea should further expand its cooperation base related to SMRs in the GCC nuclear-power market.

Since Russia’s invasion of Ukraine, the foreign policy orientation of Northern European countries, including Sweden and Finland, as well as the three Baltic States—Estonia, Latvia, and Lithuania—has undergone significant changes. Sweden and Finland, which had historically maintained a position of neutrality, joined NATO in 2023 and 2024, respectively. These developments, along with broader regional concerns regarding geopolitical instability and security, have contributed to the adoption of policies aimed at reducing political and economic dependence on Russia.

The Baltic States, in particular, are actively diversifying their external cooperation channels across key sectors such as energy, trade, and investment. This trend aligns with the European Union’s REPowerEU strategy, which since 2022 has encouraged member states to reduce reliance on Russian fossil fuels—especially pipeline natural gas—through the expansion of liquefied natural gas (LNG) imports and the development of alternative energy sources. In addition to the energy sector, cooperation with Russia has declined across a wide range of industries, including electronics, machinery, agriculture, food, logistics, and maritime shipping. Concurrently, economic and strategic partnerships with the EU and the United States are being actively expanded.

The defense and security sectors are also experiencing structural change. With Sweden and Finland’s accession to NATO and increased security needs among the Baltic countries, cooperation in defense production, procurement, and exports is expanding. South Korea has already enhanced its defense industry presence in Central and Eastern Europe, most notably in Poland, and similar opportunities are emerging in Northern Europe and the Baltic region. These countries are also positioning themselves as key participants in Ukraine’s reconstruction process, with high-level policy discussions—including international conferences—actively ongoing.

In response to this shifting, the South Korean government is broadening its engagement through various initiatives, including increased grant assistance for Ukraine’s recovery, the strategic use of the Economic Development Cooperation Fund (EDCF), and the reinforcement of institutional and local cooperation networks. The Baltic States, having undergone their own transitions from former Soviet republics to EU member states, provide valuable reference points for Ukraine’s post-war reconstruction and potential EU accession. This creates opportunities for enhanced Korea–Baltic cooperation in sectors such as defense, energy, digital technology, and logistics.

Recent shifts in Northern Europe and Baltic States policies toward Russia reflect a broader realignment in international partnerships. While each country varies in its approach—ranging from assertive responses by Finland and Lithuania to more moderate adjustments in Estonia and Latvia—public attitudes toward Russia have become increasingly critical since Russia’s invasion of Ukraine, and this has been reflected in concrete policy decisions in both the political and economic domains.

These policy shifts are not short-term reactions, but rather are evolving into long-term strategies for external cooperation. Nevertheless, the full replacement of previously existing cooperation networks remains an ongoing challenge, underscoring the need for new, stable partnerships. In this context, Europe—with its high purchasing power and policy alignment with democratic economies—offers considerable potential for Korean companies seeking to expand their presence.

This study examines the evolution of anti-Russia policies in Northern Europe and the Baltic States, analyzes changes in the regional demand for international economic cooperation, and identifies strategic implications for South Korea. In addition to a literature review, the study incorporates qualitative insights obtained through field research, expert consultations, and engagement with the Embassy of the Republic of Latvia to the Republic of Korea. Particular attention is given to the defense and infrastructure sectors, where future cooperation models may be developed. With the support of the Embassy of the Republic of Latvia to the Republic of Korea and the Investment and Development Agency of Latvia (LIAA), fieldwork was conducted in Riga from April 21 to 25, 2025, during which the research team carried out policy interviews and expert discussions to examine the trajectory of anti-Russia strategies in the Baltic States and explore the potential for expanding Korea–Baltic cooperation, including opportunities for Korean defense industries in local markets.

Based on this analysis, the study presents the following four policy recommendations: 1) Expand South Korea’s EU cooperation framework to include Northern Europe and the Baltic region; 2) Identify strategic industries aligned with regional characteristics and development priorities; 3) Pursue integrated projects that address cross-national needs across the five countries; and 4) Develop mechanisms for joint participation in large-scale European initiatives through strengthened bilateral and multilateral partnerships.

Together with the global expansion of projects to realize carbon neutrality, demand for key minerals—used as raw materials for renewable energy power generation such as solar panels and wind turbines, as well as for electric vehicles (batteries)—is rapidly increasing. One major concern is that China holds a dominant position across all stages of the global critical minerals supply chain, from mining (ore and concentrate) to refining and smelting (basic and processed metals), and recycling (scrap). In particular, China’s influence in the refining and smelting sector is overwhelming, and the nation also exerts significant control over the mining stage for certain minerals. In response, major countries including the United States, the EU, Japan, and the Korean government are strategically working to establish stable supply chains in this area, aiming to reduce reliance on China (de-Chinaization) and to transition energy structures towards decarbonization. Notably, although Korea is a major manufacturer in advanced industries such as electric vehicle batteries and semiconductors, its dependence on China for refined and processed products of critical minerals like lithium, cobalt, and nickel exceeds 70%, posing significant vulnerabilities in its supply chain.

China holds a dominant position as both a major supplier and consumer within the global critical minerals supply chain, but it exhibits various strengths and weaknesses at different stages. This study divides the supply chain into the stages of mining (ore and concentrate), refining and smelting (basic and processed metals), and recycling (scrap) to analyze China’s influence and vulnerabilities. It also examines strategies on the part of the Chinese government and enterprises to fortify their supply chains, drawing implications for Korea’s stable mineral procurement.

Chapter 2 of the study analyzes China’s control measures and vulnerabilities in the global critical minerals supply chain. While China firmly dominates the refining and smelting stages of the global critical minerals supply chain, it is relatively vulnerable in the mining stage. This is because, despite holding some advantages in ore deposits and production, China’s domestic industrial demand is not fully met, resulting in a high dependence on imported raw materials. Moreover, China has an industrial structure that imports basic raw materials for refining and smelting, meaning that as metal production increases, the demand for raw material imports also rises accordingly. Additionally, our analysis comprehensively considers mineral-specific (basic raw material) reserves, production volume, external dependence, and the Trade Specialization Index (TSI) to evaluate China’s strengths and weaknesses, linking these to the strategies China pursues. China mainly enforces export controls on Group 1 minerals—such as rare earth elements, gallium, and germanium—over which it holds an absolute advantage, using these controls as tools for economic pressure or strategic leverage. For instance, in response to US semiconductor equipment export controls against China, China banned exports of gallium and germanium to the US. For Group 2 minerals (those with advantages in reserves and production but insufficient to fully meet domestic demand), export control systems are also applied, but the focus here is more on domestic supply and demand management. For example, China has tightened export controls on antimony since 2019 to stabilize domestic supply amid internal shortages and growing demand for home appliances in 2024. Meanwhile, minerals classified as Group 3 (disadvantaged minerals) such as copper, aluminum (bauxite), lithium, cobalt, and nickel show high Chinese market shares at the refining stage but suffer from insufficient domestic reserves and production, leading to heavy reliance on overseas sources for raw materials. Copper and aluminum are widely used as base minerals, while lithium, cobalt, and nickel are essential for core industries like secondary battery cathode materials. Any disruption in the supply of these raw materials could impact China’s overall industrial sector. In response, China focuses on domestic resource development, securing overseas mines, and recycling to strengthen resource security and supply chain resilience.

Chapter 3 analyzes domestic mineral resource development and recycling strategies. In the area of domestic development, China strategically manages its mineral resources based on the Mineral Resources Law and the five-year National Mineral Resources Plan. In 2024, a comprehensive revision of the Mineral Resources Law was made to explicitly link resource security with national security, strengthening the legal foundation by introducing provisions for the stable acquisition of strategic minerals and supply chain stability. The National Mineral Resources Plan includes comprehensive strategies not only for domestic resource development but also for securing overseas resources, controlling protective minerals, and stockpiling. The plan (2016–2020) officially designated 24 strategic minerals. In particular, regarding domestic mineral resource exploration and development, various policies are in motion to promote exploration, innovate technologies, and foster mining industry clusters linked with related downstream industries. As of 2023, China’s investment in geological exploration and fixed assets in mining has increased for three consecutive years. Exploration investment has been focused on base minerals, but following policies to expand exploration of strategic minerals, new deposits of lithium, rare earths, and others have recently been discovered. Consequently, China’s global lithium reserves ranking rose from 6th to 2nd in the world. Additionally, China is expanding its influence in deep-sea resource development by securing exploration rights for gas hydrates in the South China Sea and polymetallic nodules in the international deep-sea CCZ (Clarion-Clipperton Zone) area.

In the area of resource circularity, China is actively promoting recycling policies to realize a circular economy and ensure the stable supply of critical minerals. The government plans to establish waste recycling systems (collection and sorting → pre-treatment → refining and recycling) in key sectors such as waste home appliances and spent batteries by 2025, and aims to standardize these systems by 2030. This nationwide system construction and standardization is led by the China Resources Recycling Group (CRRG). The CRRG provides comprehensive solutions by integrating functions such as acquiring and merging leading industry companies, waste collection, processing, distribution, and standard setting. As of April 2025, the CRRG has established nine subsidiaries focused on areas like spent battery recycling and non-ferrous metal recovery, integrating and standardizing the previously fragmented systems across these fields. In the recycling sector, spent electric vehicle batteries have emerged as a crucial means of securing key minerals such as lithium, nickel, and cobalt. Although China has not yet fully built institutional frameworks and standardized markets for spent battery recycling, it has adopted advanced policies faster than any other country and continuously optimizes its regulations through trial and error. Major companies like CATL have already established a closed-loop recycling system and are expanding their influence across the entire supply chain through cooperation with domestic and international automakers. Accordingly, by 2050, China is projected to maintain unparalleled dominance based on the world’s largest spent battery processing capacity, raw material supply, and technological capabilities.

Chapter 4 addresses China’s strategies for securing mineral resources overseas. The Chinese government identified the overseas acquisition of mineral resources as a key policy direction in the National Mineral Resources Plan (2016-2020). It pledged to mobilize various policy tools, including mining cooperation based on the Belt and Road Initiative (BRI), exploring joint investment models linking mining and infrastructure, establishing multilateral and bilateral cooperation platforms, supporting Chinese companies’ overseas mineral investments, and participating in global mining governance. Looking at global mineral (metal resource) investment trends since China officially launched the BRI in 2013, several points stand out. First, investment by private enterprises in metal resources has expanded significantly. Second, the primary investment regions have diversified from a previous focus on Australia to include Sub-Saharan Africa, South America, and East Asia. And third, while investments have continued to focus on base minerals, there has been a gradual increase in investments targeting critical metals such as lithium, nickel, cobalt, uranium, and niobium. Based on comprehensive support from the Chinese government, both state-owned and private enterprises have focused on securing base minerals (iron, copper, aluminum) and critical metals (lithium, nickel, cobalt, uranium, niobium) primarily in Sub-Saharan Africa, South America, and East Asia—key regions for China’s mineral supply. All the major minerals secured overseas by China belong to its group of disadvantaged minerals (i.e., those in which China is relatively weaker domestically). While every country secures its disadvantaged minerals through key supplying nations, China is particularly threatening because it invests aggressively enough to gain control over production within supplying countries. For example, in the Democratic Republic of Congo—where about 70% of the world’s cobalt ore production (with over 50% of global reserves) is concentrated—Chinese companies currently account for over 40% of cobalt ore production. Similarly, in Indonesia, which holds 42.3% of nickel ore reserves, 50% of mining production, and 42% of refining production, Chinese companies are estimated to control about 75% of nickel refining capacity. In other words, China has not only strengthened the raw material stages (ore mining and refining) of critical minerals such as cobalt and nickel—previously its weak links—but has substantially overcome these vulnerabilities. Examining the strategies behind these achievements, first, China has built multi-layered cooperation platforms (region-state, state-to-state) with key mineral-supplying countries in Sub-Saharan Africa, South America, and East Asia, creating long-term negotiation mechanisms with local governments and conducting regular consultations. Second, China established regional funds to provide large-scale financial support (indirect financing) for domestic state-owned and private companies investing locally. Third, it has developed mineral production and processing facilities within key countries to strengthen localization capabilities.

Chapter 5 analyzes China’s export control strategies. China established its legislative plan for the Export Control Law in 2016 and began its enforcement on December 1, 2020. Subsequently, in 2024, China enacted the Regulations on the Export Control of Dual-Use Items and announced the List of Export and Import Administration for Dual-Use Items and Technologies, thereby strengthening its export control legal framework. We evaluate this as indicating China has established a complete legal foundation before the inauguration of the new US administration (Trump’s second term). Since the enforcement of the Export Control Law, China designated key mineral resources as dual-use items to reinforce resource security and, from 2023 onward, has actively used export controls on advantageous mineral resources as a strategic response card. In retaliation to US semiconductor equipment export controls, China restricted exports of major minerals such as gallium and germanium. On December 3, 2024, China implemented export bans specifically targeting the US on dual-use minerals including gallium, germanium, and antimony for the first time. Between 2023 and 2024, China implemented export controls citing the need to protect national security and interests. Some minerals, such as graphite and antimony, were controlled to address internal supply issues and to adjust the list of temporarily controlled items. However, after the inauguration of Trump’s second term in 2025, China escalated the weaponization of mineral resources more explicitly, enacting export control measures immediately upon announcement and clearly signaling these as pressure tactics against the US. For example, the export controls on seven types of Chinese rare earths directly pressured the US defense industry, a move publicly emphasized by Chinese media. Minerals designated as dual-use export control items by China generally correspond to strategic minerals in which China holds a reserve and production advantage, and many have already been designated or are expected to be listed. Coming into 2025, we see a tendency to convert minerals previously on the export licensing management list (e.g., titanium, molybdenum) into dual-use controlled items, or to expand the range of controlled items among existing controlled minerals (e.g., tungsten, rare earths). Controls have also been strengthened on minerals included in the dual-use control lists of other countries, such as indium, molybdenum, and bismuth. Going forward, additional minerals such as vanadium, fluorite (rare earth elements not yet controlled), magnesium (with an expanded control list), beryllium, and aluminum are highly likely to be added to the control list. Regarding the export trends of minerals designated as dual-use export control items between 2023 and 2024, such as graphite and antimony, China has sharply reduced exports of basic raw materials (ore and concentrate) while increasing exports of refined metals and processed metals with higher added value. This strategy is evaluated as an effort to maximize national benefits by shrinking exports of raw materials—whose end users and purposes are difficult to track due to multiple processing stages—and expanding exports of higher value-added finished products.

Chapter 6 proposes the following response measures for the Korean government and companies based on the aforementioned analysis: Since Korea lacks deep-sea mining technology and experience, cooperation with technologically advanced countries such as the United States is necessary. Korea should also actively participate in establishing rational mining regulations that consider environmental protection to secure deep-sea resources. Korea needs to secure competitiveness in the battery recycling industry through a private-sector-led ecosystem construction complemented by institutional support from the government. Cooperation with Chinese companies in refining and smelting within major mineral supplying countries is essential. Regarding minerals such as fluorite and magnesium, which China is likely to attempt to control exports of in the future, the Korean government and companies need to proactively prepare by adjusting stockpiles and diversifying import sources. As China is expected to expand export controls not only on minerals themselves but also on refining and smelting technologies, it is urgent to promote cooperation with countries that have similar demands in refining and smelting sectors.