Chinese tech is right at the cutting edge of global tech. Chinese culture has always been something of, you know, with many attractive points, and China's becoming the second superpower. Its economy is going forward, and there's a lot of admirable things happening in China. I think it's becoming somewhat cool.
Welcome to China Decode. I'm Alice Han, and I'm James Kynge. In today's episode of China Decode, we're discussing Trump warning allies of China as trade, drugs, and even pandas turn geopolitical. The Panama court ruling shaking up US-China influence over the canal. And why everyone is saying they're now living a very Chinese time in their lives. That's all coming up. But first, let's do a quick check-in with how the Chinese markets are starting the week. On Monday, the Shanghai A-share index fell 2.5%. The Hang Seng index closed down 2.2%.
Precious metal miners sank after the Shanghai gold exchange raised margin requirements after last week's historic gold sell-off. Chinese EV maker BYD fell roughly 7% after reporting that January sales were down nearly 30% year-on-year. And telecommunications companies such as China Unicom and China Telecom slumped in response to the newly increased value-added tax rate on mobile data. All right, let's get right into it. Trump is turning up the heat on American allies he says are getting too close to Beijing, warning the UK and Canada that deeper China ties are, quote-unquote, dangerous. But the message is colliding with reality. British pharmaceutical company AstraZeneca just inked a multi-billion-dollar obesity deal with a Chinese pharma giant. At the same time, Washington is quietly hedging its bets, launching a $12 billion critical mineral stockpile to blunt China's dominance over rare earths, lithium, and copper. And in Asia, China's soft power is getting sharper. Japan is losing its pandas as tensions over Taiwan spill into what some are calling outright panda diplomacy. James, so much has happened in January. Can I just say before the year of the fire horse has begun, and I would say that there are sort of a tale of two stories in a sense, that we're seeing improving relations with some of the G7 countries, notably Canada and the UK, but Japan is losing its pandas. Things are getting worse between Tokyo and Beijing. How do you square up these two narratives?
Wow. I mean, yeah, as you say, Alice, I mean, the fire horse, the Chinese year of the fire horse, which is supposed to start in February, is already supposed to be a pretty turbulent year. But as you've said, the run-up to the fire is proving incredibly turbulent. I would just start with the question of Trump and his comment about it being very dangerous for US allies, particularly the UK and Canada, to be inching closer to China. Is this real? Is this credible leverage or is this empty bluster? I mean, the first thing to say is that it's really hard to call in the case of President Trump. In some cases, he appears to back down or even hold off, but in other cases, such as the attack on Venezuela in January, he delivers a lightning strike. And sometimes those actions can be military, but we should also remember the very stiff tariffs that the White House under Trump put onto India over a different commercial issue. So, you know, we just don't know which way this is going to go. But I do think that Canada, the UK, and other US allies should be taking this warning pretty seriously. And the reason I think that is because the backdrop to this really is quite revealing of the situation that we're in. To me, the big question concerns the new world order, or the question of are we moving into a new world order which is dominated by China, or is the existing world order that's dominated by the US being somehow diminished or even on the way out? And I think what happened in Beijing is really conducive to our understanding of the crucial question of which superpower, the US or China, is on the up and which superpower may be on the downtrend. This visit by UK Prime Minister Keir Starmer to China was the third by a key US ally in the same month. That's January. At the beginning of the month, the South Korean leader visited China, then the Canadian Prime Minister Mark Carney in mid-January, and now Starmer, the UK Prime Minister, in late January. All of these countries are crucial allies of the US. They all live under the military protection of the US. They all have troops, US troops, stationed on their territory. And in the case of the UK and Canada, they're both founding members of NATO, the military alliance which is led by the US. Just to round off this picture, we shouldn't forget that the German Chancellor Friedrich Merz is also expected to visit China later on this month. And Germany also has its security guaranteed by the US. US troops are stationed in Germany. And Germany is a member of NATO. So with South Korea, Canada, the UK, and Germany all flirting with China, it's really not hard to see what's going on. This sort of picture is backed up by some of the honeyed language which is being used by the leaders of South Korea, Canada, and the UK when they visited China. And I think flirting really is the right word because in diplomatic speak the words being used are really flirty. You know, Starmer said to the Chinese president that he wants to work on a comprehensive strategic partnership with China. Strategic partnership. The UK's strategic security is guaranteed by America, not China. So why is he talking about a strategic partnership? Carney went one stage further in that he agreed a strategic partnership with China. That's agreed. The UK is just talking about developing it. And the South Korean leader said that his country was embarking on a new phase in their relationship. I'd say that's slightly less flirty than what Starmer and Carney got up to, but to me that's still words that might ring alarm bells in Washington. Just for context here, the US most certainly does not have a strategic partnership with China. Neither do other crucial allies of the US such as Japan. So it comes down to what I consider to be a very stark question for the relations of the West with China going forward. And that question would be: for how long can countries that derive their security and much of their trade from the US expect to be able to get closer to China and to diversify their economies toward China? And here, Alice, you mentioned the $15 billion US dollar deal done by AstraZeneca, which is the UK's biggest company to invest in the pharmaceutical supply chain in China. So this really is a live question. I really don't know the answer. I really don't know if push is going to come to shove and there's going to be a big bust-up as the US really decides to tighten the screws on its closest allies, or if the US is just going to let the UK, Canada, South Korea, Germany get closer to China from an economic perspective and possibly the closeness of that economic relationship maybe slowly hollow out the diplomatic affinity that these countries have with the US. I just don't know. But before I turn it back to you, Alice, let me just give some of the quotes. Okay. So, first of all, Trump, when asked about Starmer's attempts to get an economic reset with China, he said, "Well, it's very dangerous for them to do that, right?" He also said, "It's even more dangerous, I think, for Canada to get into business with China. Canada is not doing well. They're doing very poorly and you can't look at China as the answer." Starmer, when asked about Trump's remarks, said, "I don't think it's wise for the United Kingdom to stick its head in the sand. China is the second biggest economy in the world. It is, along with Hong Kong, our third biggest trade partner. And through this visit, we've opened lots of opportunities for jobs and wealth creation back in the United Kingdom." So, what do you make of it all, Alice? I mean, the question couldn't be any bigger. This is the future of the West, and yet I'm afraid I'm scratching my head. I don't really know where this is going to go.
Well, as you were talking, James, I was thinking I absolutely love the flirting metaphor, and I'll go into that in just a bit. But the other thing that I was thinking about as you were talking was how the question you asked, how will the West deal with China and the US, is a question at the heart of Mark Carney, Canadian Prime Minister's speech at Davos, which obviously had rave reviews and a standing ovation. And he was in a way charting a path for middle powers like Canada, like Britain, like Australia, like Japan to navigate a world in which things are increasingly a zero-sum game. The world is increasingly moving towards some form of deglobalization. There are increasing tensions in trade and national security and technology largely centered around the locus of US-China conflict. And my feeling is that the solution that Carney, Starmer, and some of these other middle powers, maybe potentially Merz as he's going to China in the next few weeks, is that somehow we need to hedge between the US and China. And because there has been a dramatic drawdown in relations with China on the part of these, call it, Western middle power countries in the last few years, their only real answer is that symbolically we need to go to China and announce some kind of a reset in the relationship and hopefully we can announce a reduction in tariffs, symbolic in bilateral investment flows and market access. Like if you actually break down what Carney and Starmer got back from their trips to China, I would say pretty minor and mainly symbolic because to your point, James, the US is a security guarantor to two of these countries. But more importantly, if we look at the geometry of trade surpluses and deficits, China is a trade surplus country with pretty much all of these middle power G7 countries. So how can Starmer, Carney, Takaichi, for that matter, deal with a China that is running massive, and I think increasingly massive, trade surpluses in a period in which China is unlikely to, I think, structurally pivot towards large-scale consumption-led growth? That is the big question economically of our time. But I think right now people are in the tactical rather than strategic, meaning that they want to go to China and in the case of Starmer have these butterfly cookies, these pommes in Yu Garden in Shanghai and say we're trying to broker better deals. Starmer said from his trip the great prize of engagement and he talked a lot about economic business and even cultural relations. I thought it was interesting that he had an event with Rosamund Pike, the great British actress whose son actually is fluent in Chinese and has won a global Chinese speaking competition in previous years. They talked a lot about the importance of cross-cultural, cross-linguistic relations. The other thing that we haven't talked about, James, is the cultural angle, and I think we'll talk about it later on in the show, but I thought it was really interesting that both after Carney's and Starmer's trips, China said they were going to do visa-free travel, 30-day visa-free travel for Canadians and Brits. And my big takeaway, which I don't think people really noticed in 2025, is that that visa-free travel has been one of the biggest cultural diplomatic successes for Beijing because all of a sudden it's opened up the West's sort of perceptions of China. You know, I think they really hit negative PR back during COVID and in the aftermath of COVID, but that is starting to change. So I think that that is one of the big announcements coming out of these trips beyond obviously some of the strategic economic angles. And then last but not least, I do think that this AstraZeneca deal which we mentioned obliquely is a big deal. This is going to be $15 billion in the course of the next five years, not just in terms of these variations on weight loss drugs, but also in terms of oncology and R&D into cell therapy, which could be quite cutting edge and interesting as we think about the future of biotech. But again, my takeaway is that a lot of these trips are symbolic at a time where the middle powers, quote-unquote, are unhappy with Trump's unilateral policy and his haphazard policy at a foreign policy level. So it's easy for them to go to China and say, "Look, we're resetting relations. We're getting some deals on reducing tariffs on market access." But at the end of the day, China, I think, will win because it's still going to run massive trade surpluses with these countries. The next thing we're going to have to watch is what Merz gets out of this trip, because Germany in many respects, I think, is the worst off, a country that is increasingly competing with China in a lot of goods, not just autos, but chemicals even. That will be the next thing to watch. But I love the way that you framed it as flirting. And I think this very much is flirting without actually engaging in a serious relationship because they know at the end of the day that the serious relationship is with Washington.
Yeah. And I think your focus on AstraZeneca there is also so revealing. I mean, to say that they've fallen for the flirting would be too flippant because what's happened in the case of AstraZeneca, I think, is really instructive of what is happening with an increasing number of the top companies anywhere in the West, that's US companies, German companies, UK companies, all over Europe, and that is that they're going to China not because they want to sell masses in China, of course they want to sell as much as they can, but they're going there because the R&D, the research and development in this case of drugs that can be done in China is at least on a par with the very best that can be done in Europe or the US or anywhere else. And so this $15 billion US investment unveiled by AstraZeneca is all about taking advantage of Chinese brain power and research capacity in the pharmaceutical area. And so I think that what's happening here is that we're seeing the draw of China not as a market so much but as a source of cutting-edge leading R&D expertise in the world. And when that happens it basically means that the head of AstraZeneca moves to China. I think we're already seeing this in the case of other companies like VW. They have got a big research center in China. Most of their new models globally are going to be launched in China first and subsequently elsewhere around the world. And so this was another thing that really struck me about the visit of Starmer this time. It's all about UK companies wanting to climb onto the zeitgeist in China, whether that be R&D or as you mentioned the cultural upsurge or the cultural connections rather than as used to be the phrase selling hundreds of millions of commodities to the Chinese people. So it's a very different dynamic. It's now the case that some of the biggest companies in the West can't survive globally unless they're tapped into the Chinese R&D network. That is another uncomfortable truth that every Western country has to deal with.
Yeah, I completely agree with you. And just to underline that point, it reminds me of the CEO of CERIP, who's also a famous demographer in China. He's just come out with a book. His name is James Liang. He talked about this generation of Chinese youths. The next 20 years, they're going to be the most tertiary educated people on the planet. The most numerous tertiary educated people. So when you think about it at an aggregate level, that means that China is pivoting from being a major labor manufacturing input into the global supply chains to being a human capital input in the global supply chains, which is to your point, James, why all these companies want to move there and do R&D, want to do their drug trials and drug discovery trials in China. That I think will be an ongoing trend, and AstraZeneca is a good indication of that. One thing that I will end on is that I think this panda diplomacy, what I call panda diplomacy, which is, you know, to be more on the friendly side towards countries as opposed to warrior diplomacy, is probably some kind of Kung Fu Panda diplomacy, if I can borrow that terminology rather facetiously, because at the same time as they're trying to make nice with these Western countries, I think things are going to get worse with Japan. Takaichi looks on the brink of getting a landslide victory in the house and that probably will empower her to continue to take a hawkish attitude towards China. There's a big question of the yen. I could see a world in which yen weakness remains a theme compared to yuan, where again I see some appreciating pressure notably against the dollar but not so much against other trading currencies where it may depreciate. So we may have tensions not just over Taiwan between Japan and China but over currencies as well. That is something to be watched, but we'll be back with more after a break. Stay with us.
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Welcome back. A Panamanian court just voided a Hong Kong firm's Panama Canal port contract. A win Trump is framing as reclaiming US influence. But Beijing is warning it will protect Chinese interests at all costs. With BlackRock and Chinese firm COSCO circling, what looks like a victory could quickly turn into another US-China standoff over global trade choke points. James, just as things were looking dovish between China, I'm starting to get a little bit nervous. And I think these are the early innings of, I believe, tension over the Panama Canal which to the US is important. That's 40% of maritime trade. To China less so. But still China's not backing down. They want to protect Chinese interests in the region. I think this is going to be a big bellwether because remember Trump's national security strategy last year was very much to focus on Latin America and the Americas. So I think this could be a canary in the coal mine or a yardstick to see where US-China relations end up this year. What is your take on this?
Well, I think, you know, the two superpowers, the US and China, are squaring off quite uncompromisingly over the Panama Canal. As you know, Alice, President Trump has said that he wants to take back the Panama Canal. Then he rode back from that last year and later on he said that the shipping rates along the canal should be lowered and then he added if they are not lowered, quote, "we will demand that the Panama Canal be returned to us in full quickly and without question." I think there is a question in my mind at least as to how much US pressure lay behind the court ruling by a Panama court last week that the contracts to run two ports on the Panama Canal, that's Cristobal and Balboa, that were given to a Hong Kong ports and shipping company, CK Hutchison, were unconstitutional. We don't have any readings on how much if any US pressure was applied behind the scenes but I do think it's quite interesting that this court ruling took place and comes against a backdrop of President Trump saying that he wants the Panama Canal to come back. The Danish firm Maersk will apparently temporarily take over the operation of the two ports that I've mentioned and then I think a longer-term solution is likely to be hammered out. According to the court ruling that annulled CK Hutchison's contract to operate the ports, it said that CK Hutchison's contract had, quote, "disproportionate bias towards the Hong Kong company." And you know this is a big deal because this Hong Kong company, CK Hutchison Holdings, has managed the ports since 1997 under a concession. And that concession was renewed in 2021 for a period of 25 years. So we really are talking about, you know, a really long-term contract to operate the two big ports at either end of the Panama Canal. And just for context here, China's foreign ministry spokesman said that Beijing will take all measures necessary to firmly protect the legitimate and lawful rights and interests of Chinese companies. So obviously as you mentioned, Alice, China is not taking this lying down. The other thing that I think is crucial to say here is that there's a much bigger hinterland to this question because some US officials have mentioned their dissatisfaction with the Chinese ownership of other ports in the Latin America area. In particular, there's a big port in Peru called Chancay which is operated by the Chinese company COSCO Shipping. They have about a 60% stake in that port and some former senior US military officials have said that this port has a potential for dual use by both civilian and military actors. Obviously suggesting that the Chinese could use this port in the future for some kind of military use. So there's a statement of dissatisfaction there. There's another statement of dissatisfaction from US officials who've been anonymous in the articles that I've read saying that Washington is watching with concern something called a bioceanic corridor railway project that is to be built between ports in Peru such as the Chancay one that I'm talking about way over the Amazon into Brazil and that railway would connect with Brazilian ports on the Atlantic Ocean. So Washington is watching with concern according to anonymous US officials quoted in US media. And last year, Argentina effectively blocked a Chinese company's involvement in a project to deepen a crucial transportation waterway in Argentina. So we can see that the US and China are squaring off behind the scenes and very publicly in the case of the Panama ports over the issue of who controls crucial infrastructure in Latin America. So I think this issue, as you say, Alice, I think it really could run and it could become more and more antagonistic between the US and China. What's your sense?
Yeah, I agree with that. And you know, just as Obama was talking about the pivot to Asia, if you recall that being the Kurt Campbell phrase, I think it's a pivot to Latin America from Washington somewhere closer to home, whereby they are very worried about China's infrastructure investment in critical minerals, in ports, in infrastructure. They see it as a security threat. And that's why I think that this port discussion is, I think it's going to blow up. It's going to increase in its tenor because ultimately the Trump administration sees this as a key risk. 40% of US container traffic transits the canal. So from Washington's vantage point, China could use this to effectively block 40% of goods going into the US via the Panama Canal. And from China's perspective, they actually want COSCO, this Chinese shipping company, to be part of the consortium. If you recall last year that was floated that includes BlackRock and shipping company MSC that would buy up CK Hutchison's contracts in Panama and elsewhere. So that's 43 ports in 23 countries that was announced last March. So the fact that MOFCOM is intervening, China's Ministry of Commerce is trying to get in and saying that it will defend at all costs the interests of Chinese investors, I think is pretty telling. And again, I think pretty strong rhetoric coming out of Beijing. So, I'm not sure if either side will stand down in this fight over the Panama Canal. And I would be worried if I were Beijing looking at my strategic investments elsewhere in Latin America after the Venezuela effectively regime change or regime alteration as my colleagues call it because now Trump can point to Venezuela when he talks to other Latin American and Central American countries and say, "Oh, by the way, you don't want this to happen to you, right? So, I think you should get rid of these Chinese contracts or block Chinese investment going into the region." I think this is going to be a big theme in 2026. And then last but not least, I sense this is going to be a year of port risks because I'm most worried about the Straits of Hormuz. We haven't seen that fully off the table. Certainly tensions between US and Iran have died down. But I'm worried about Israel-Iran tensions where I think Netanyahu, the Israeli prime minister, has an incentive I think to do some kind of escalation of bombings on Iran in the first half of this year. So we could see renewed tensions and questions about the integrity of the Straits of Hormuz where 30% of the world's oil is shipped and remember about 15% of China's seaborne crude comes from Iran. So I wouldn't be surprised if China is going to continue to diversify away from not just Venezuela but Iran where there's still a lot of dependency on Iranian oil. So I think we should be watching this closely. There's a lot of risks in these ports, not just Panama but even closer to Iran. But how do you see China's Latin America strategy? Do you sense that China is changing its strategy towards Latin America?
Not really so far. I mean, I do think that, you know, this the US identifying the Western Hemisphere by which it means primarily I think Latin America has been a big shock to China. I think there's no question about that. I don't think that Beijing has decided quite exactly how it wants to deal with increased US assertiveness in Latin America. Obviously, it wants to fight tooth and nail to maintain some of its assets and the assets that it can, its companies control like the ports that we've been talking about. But at the same time, it really doesn't want to antagonize the US, especially I think under President Trump because President Trump has shown that he is willing to take proper action. We haven't mentioned Cuba yet, but, you know, there are US warships around Cuba. China is, you know, is an increasingly close friend of Cuba. You know, I think the last thing that China wants is to be on the other side of a US-led conflagration in Latin America that could then antagonize US relationships with China at a much deeper level across the board. And to go back to our previous conversation, alienate some of China's increasing allies in Europe and Canada or the UK and all of that, you know. So, I think China wants to cling on to its assets but avoid poking the American bald eagle if that's not mixing a metaphor.
