Before we start today's episode, a quick note about another show in the ProfG media world. Raging Moderates with Scott Galloway and Jessica Talov is now five days a week, with new episodes coming every weekday evening. It's a show that is very helpful for making sense of US politics right now. If you're not already subscribed, you definitely want to check it out. Find Raging Moderates on YouTube as well as Apple Podcasts, Spotify, and everywhere else. Now, here's the show.
I don't see this as primarily motivated by the US wanting to take on China. I see this as motivated in the first instance by issues that the US has with these individual countries. But I really do think that it's time to ask the question: is what people a few years ago were calling the new cold war between the US and China now warming up? Has it got the potential to warm up? And if so, then we're in a very, very different world from the one that we've all been used to.
Welcome to China Decode. I'm Alice Han, and I'm James Kynge. In today's episode of China Decode, we're discussing how China is responding after Trump attacked Iran, China prepares to lock in its next five-year economic battle plan, and China's electric vehicle safety reckoning after a fatal crash. 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, investors rushed to respond to the situation in Iran. Despite this, the Shanghai Asia index rose about 0.5%.
The Hang Seng Index, on the other hand, fell almost 3% before recovering slightly, the largest selloff since the Liberation Day tariff announcement last April. In fact, 76 stocks in the 88-member Hang Seng index closed down on the day. Oil companies were obvious winners. China National Offshore Oil Corporation closed up more than 5% and PetroChina more than 4%. All right, let's get right into it. As the Middle East teeters after the killing of Ali Khamenei, China is no longer just quietly watching. It's openly condemning Washington and positioning itself for what comes next. Beijing blasted the US and Israel for what it called the quote-unquote blatant killing of a sovereign leader, with Foreign Minister Wang Yi warning the region could be pushed into a dangerous abyss. Russia's Vladimir Putin echoed that language, calling the strike a violation of international law, just as Tehran installs a temporary leadership council and the Iranian Revolutionary Guard Council launches retaliatory attacks across the region. Meanwhile, three US service members are dead, oil shipments are disrupted, and the Strait of Hormuz, a choke point for roughly a third of China's crude imports, is suddenly at risk. James, I thought I was going to have a quiet weekend, but no, I didn't. This has obviously come up in the last few days. China actually has been pretty slow and I think kind of restrained in its language if I compare this to Venezuela as a direct analogy, and it hasn't really condemned the strikes as strongly as I expected. Although in the last 24 hours we've seen a bit of a change, especially with the killing of Khamenei. Now China is calling for a ceasefire. There is obviously the oil strategic question at risk. You know, about 15% of seaborne crude going to China comes from Iran, and Chinese are definitely worried about the Strait of Hormuz. What is China's positioning on this issue, and why do you think they haven't really been strong in their language from the get-go in terms of condemning Israel and the US?
Yeah, great question, Alice. I think there's a couple of really big issues here. One is the one that you've just mentioned: how is China responding? How do we assess its reaction? And the other question is probably much bigger and much more difficult to answer, and that is: is the United States now in some kind of a proxy war with China? I know that sounds really dire. Maybe this is overly sensational, but when you consider recent history, and I mean very recent history, the US attack on Venezuela in January, with which China had deep commercial, diplomatic and security ties. And now we have the attack on Iran, a country with which China has a crucial oil import arrangement and deep investment and a so-called comprehensive strategic partnership. And then of course there's Ukraine. China and the US are on different sides of that conflict. China's a staunch ally of Russia, and the US and Europe are supporting Ukraine.
And in addition, we've seen the government of Panama recently take back control of two ports at either end of the Panama Canal that were operated by a Hong Kong Chinese company. And that was after President Trump said that he was taking back the canal. And now of course we've got Cuba potentially in the future. Donald Trump said that the US wanted to have a quote friendly takeover of Cuba. China also has deep ties with Cuba. So I really do think there is a logical and viable question to ask, which is this issue of is the US now in a kind of proxy war with China? The US is targeting several of China's key allies in the world, and you know, my first kind of tentative reflection on this would be that we probably should see the action by the US on Iran as an issue that the US took because of specific conditions in Iran rather than its prime motivation being opposing China. And I think that the same might be true with Venezuela as well. I don't see this as primarily motivated by the US wanting to take on China. I see this as motivated in the first instance by issues that the US has with these individual countries. But I really do think that it's time to ask the question: is what people a few years ago were calling the new cold war between the US and China now warming up? Has it got the potential to warm up? And if so, then we're in a very, very different world from the one that we've all been used to. I think the first question is the one that you have raised, Alice. How is China reacting? To me, the first issue here is whether or not the summit meeting at the end of the month, which is planned between China's President Xi Jinping and President Trump, will go ahead or not. Clearly this has been a massive blow to China's sense of where the US is. And I just wonder whether, given the fact that, as you mentioned, the Chinese Foreign Minister Wang Yi just said that it was quote unacceptable to openly kill the leader of a sovereign country and institute regime change. Okay, so if it's unacceptable, then how is it acceptable to have a summit between China's leader and the US leader at the end of this month? That's my first question. I really think that that summit meeting is now potentially in jeopardy. We'll have to watch. The other thing I think about China's reaction is that there must be reflection in China that this, although it hits China really badly for several of the reasons that you've given, of course oil imports from Iran is one major one, the situation in the Straits of Hormuz is another one. But there is potentially an upside to China here, and that is simply that given that the US has shown that it is prepared to intervene militarily without the backing of law, perhaps this is an opportunity for China to show itself to the world yet again as the more stable superpower. This is something that we might not see the effects of for quite some time. But I do think that that is a key question that we should also bear in mind. What's your sense of how this is going to play out? Whether this plays to China more or to the US more, whether this really does inflict kind of even more severe pain into the US-China relationship.
I love that you talked about proxy wars. I'm a cold war historian by training, so I think a lot in terms of the cold war analogies. I completely agree with you, James. I think Ukraine is a more natural analogy with parallels to the Vietnam War and even the Korean War, where you do see these two different camps, the West and the Soviet Union, really being at cross purposes and leading to an impasse, which was in the case of both Korea and Vietnam for a period of time. It seems like we're in the midst of that in the Ukraine-Russia conflict as well. I do agree that Iran is sui generis. Iran is, I think, an example of what we've seen in Trump 2.0, whereby the hawkish elements of the Trump administration, Hegseth, Rubio, for instance, are seeing this as a once-in-a-lifetime opportunity to go all out on these rogue regimes and to, you know, do the kind of regime change or even an alteration that they would have liked to have done a fair while ago. And so I think this opportunity that's opened up with a weakened Iran, not just weakened by sanctions, but also weakened by, I think, increased tensions with the Gulf States, for instance, has given them a window of opportunity. Certainly Bibi Netanyahu, the Israeli prime minister's very aggressive stance on really trying to annihilate the Iranian Republic as well as its nuclear program, has again given, I think, more ammunition, so to speak, metaphorically and literally, to Washington to achieve this. I think it was very clear, at least from our own internal assessment, that this was going to happen at some point in Q1 or Q2. It was a matter of time, and likely during Ramadan. Remember, it's Ramadan right now, and certainly Bibi wants to do this on his watch because Iran is one of the key strategic adversaries of his time. I will say that I was reading a couple of articles from China Middle East experts on this, and two of them were pretty interesting to me, which will tie back to your point about the US-China relationship. One was written by the Shanghai Institute of International Studies, which is a known think tank in Shanghai. And in this article by Jia Shang, he talks about the fact that it's really Israel that is in the driving seat when it comes to the air strikes and bombings of Iran, and America is driven by quote-unquote overconfidence from Venezuela. And certainly this is what we've seen in the last 48 hours or more. And there's another article by a professor at the China University of Hong Kong in which he likens what's happening in the Middle East, with Israel acting as the fuse to the conflict in the Middle East, to what he perceives as a future risk, which is Japan really emboldening America to be more involved in East Asia. And I link this back to the US-China relationship because what I've seen is a lot of consternation amongst Chinese scholars in the last couple of weeks, especially with Takaichi, the Japanese prime minister's election landslide victory, that Japan is going to double down on militarizing, on reducing the lead times to getting nuclear arms and deployment. And that worries the Chinese because they think that a more hawkish Takaichi could get Trump and his team more interested in being combative on China on the Taiwan issue. Now, I'm not sure if I necessarily agree with that logic, but it's interesting to me that the Chinese scholars are joining the dots. To bring this back to the US-China relationship and whether or not we get a Trump-Xi summit in Beijing, I was originally optimistic that we would get this. I mean, there was an announcement a couple of weeks ago that the US President Donald Trump is going to China from March 31 to April 2. I would take the bet that that may get delayed. The Chinese, as you know, James, they don't like instability in the lead-up to negotiations. So if we see this escalate even further, I think now, especially with the assassination of the Supreme Leader, it's, I think, my own high-probability outcome that we see maybe a delay of that meeting. But on the flip side, I do think that the Chinese want to nip the relationship in the bud and make sure that we don't see an escalation ladder in trade and technology and other areas, because they understand that Trump's modus operandi right now is to be seen to be making peace and having stability in the US-China relationship. I look at what's happening in the Middle East, and when I put it in the Chinese policymakers' aperture, I think they infer from that: look, we don't want to rock the boat in the relationship with the US right now because it's a volatile situation, and certainly the Americans under Trump have proven that they're more willing to risk blood and treasure in foreign campaigns. So why don't we continue to pretend to talk, continue to offer some symbolic concessions without really offering anything structural? That, I think, will be the equilibrium strategy from China's vantage point for the coming months. But I certainly feel, in reading some of the statements from Wang and the Ministry of Foreign Affairs spokesperson, that they were taken aback by this. There's a statement from the press conference of the Ministry of Foreign Affairs spokesperson saying that China was not notified beforehand. So I think that this, not notified of the attack on Iran. So I think this has really taken China aback, and it will have material implications on whether or not we get a summit. My own feeling is that that gets delayed. But to walk it back again to the China-Iran relationship, a lot of people are saying that this is a big deal for China. China is obviously a massive importer of Iranian crude. I would take the opposing view. I think that it's far more important the relationship with Russia, and we actually have seen in the last month or so that China has been building a contingency plan by building a stockpile of crude oil sourced from Russia and Saudi Gulf states rather than Iran. But certainly in the short term, if we see oil spike, oil futures, that is obviously going to put price pressures on Chinese corporates, and certainly we have seen an 11% spike on Sunday of WTI to $75 a barrel. My own sense is that it probably goes up further because there's even more risk premium being attached to the Strait of Hormuz if that actually gets blocked. So we're far from the edge of the cliff. I think there's still a long ways to go in terms of the escalation, but my own sense is that China is going to play a wait-and-see game to see how far the US and Israel go in really launching regime change. Now, we can go into the specifics, but Iran seems different from Venezuela, seems different from Iraq and Syria, where there is a deeper state at play. So decapitation of even the supreme leader doesn't mean regime alteration or regime change overnight. It's actually quite, I would say, antifragile in that respect. So we'll have to see what comes in the next week or so when we expect an escalation in strikes from Israel and the US over Iran.
Absolutely, Alice. And I think this really shows up China's economic statecraft, or the limitations of that economic statecraft. I mean, if you look over the last 10, 20 years, effectively a great deal of China's foreign policy has been invested in getting close to countries that are rivals of the United States, and then pouring billions and billions of dollars into those countries and striking all kinds of commercial arrangements with them. And now this policy, I would say, is blowing up in China's face. If we just have a look at the constituent parts of China's commercial relationship with Iran, it really is quite staggering. Just to give you one big-picture number, there was a 25-year, $400 billion US partnership pact that was inked in 2021 between China and Iran, and that facilitates all kinds of things, imports from Iran, all kinds of other aspects of the relationship. China purchases about 80% of Iran's oil, oil exports, that is, so that is a huge number. You've just mentioned it's about 13% of China's total seaborne oil imports. In terms of investments under what's called the Belt and Road Initiative, that's China's big way of embracing the Global South by pouring billions and billions of US dollars into Global South countries. China is deeply involved. It has built much of Iran's railway infrastructure projects, such as the rail between Tehran and Mashhad, Tehran and Hamedan, and also a $2.1 billion US project to upgrade a big oil refinery at Abadan. Also in terms of technology and surveillance, firms like Huawei and ZTE, two of the big Chinese telecommunications companies, have built much of the telecommunications backbone in Iran. And you know, it goes on and on and on. There are solar power projects, other renewable energy projects that have been invested in by Chinese companies in Iran. So if the whole Iran-China relationship goes south, and we don't know if that's going to be the case at the moment, China stands to lose a great deal. And I think it raises a fundamental question as to the sustainability of China's economic statecraft, in particular in terms of its courting of US rivals in the Global South.
Well, we'll be back with more after a quick break. Stay with us.
Support for the show comes from LinkedIn. It's a shame when the best B2B marketing gets wasted on the wrong audience. Like, imagine running an ad for cataract surgery on Saturday morning cartoons, or running a promo for this show on a video about Roblox or something. No offense to our Gen Alpha listeners, but that would be a waste of anyone's ad budget. So, when you want to reach the right professionals, you can use LinkedIn ads. LinkedIn has grown to a network of over 1 billion professionals and 130 million decision makers, according to their data. That's where it stands apart from other ad buys. You can target buyers by job title, industry, company role, seniority, skills, company revenue. Also, you can stop wasting budget on the wrong audience. That's why LinkedIn ads boast one of the highest B2B return on ad spend of all online ad networks. Seriously, all of them. Spend $250 on your first campaign on LinkedIn ads and get a free $250 credit for the next one. Just go to linkedin.com/scott. That's linkedin.com/scott. Terms and conditions apply.
Support for the show comes from Gusto. Feeling the urge to level up your small business? That's a great sign. It means you've set yourself up for real growth, and now your company is ready for a major glow up. For that, you'll want to try Gusto. Gusto is an online payroll and benefit software built for small businesses. It's all-in-one, remote-friendly, and incredibly easy to use, so you can pay, hire, onboard, and support your team from anywhere. If you've ever been stuck working on repetitive administrative tasks and thought to yourself, there's got to be an easier way, that's the kind of thing Gusto was built to solve. They say they can provide automatic payroll tax filings, simple direct deposits, health benefits, commuter benefits, workers' comp, 401k, you name it. Gusto makes it simple and has options for nearly every budget. Save time with built-in automated tools, offer letters, onboarding docs, direct deposits, and more. With Gusto, you can get direct access to certified HR experts to help support you through any tough HR situation. Try Gusto today at gusto.com/propg and get 3 months free when you run your first payroll. That's 3 months of free payroll at gusto.com/propg. One more time, gusto.com/propg.
Welcome back. This week, China is preparing to formally adopt its 15th five-year plan during the 2026 Two Sessions, the country's most important annual political gathering, setting the blueprint for the next half decade of economic and technological strategy. After navigating COVID disruptions and a renewed trade standoff with Washington, Beijing is now signaling a sharper focus on resilience, supply chain security, and an aggressive push into artificial intelligence and advanced technologies. This five-year plan is going to be huge, and I think that's not an understatement. AI is going to be a cornerstone of it for sure. Do you think that this five-year plan will really set up China to reduce dependence on the US? Because certainly when I looked to the last five-year plan, there was some talk about chokepoint industries, which I think will come up again, leveraging those industries, but also the last five-year plan was very much focused on what was then called the three new. So, electric vehicles, batteries, solar panels. What do you think will be the key technological points of focus and strategic areas of interest in this next five-year plan?
Yeah, I mean, I think it's quite fitting in a way that we're talking about the new five-year plan for China after the US attack on Iran, because that will have convinced the Chinese leadership yet again that economic self-reliance and self-reliance in every other way is absolutely the policy that China should be pursuing. And so I expect that when Xi Jinping stands up and gives his speech at the National People's Congress later on this week, there will be loud applause when he mentions the word self-reliance. So I think that the main focus of this National People's Congress and the 15th five-year plan, which will be adopted at it, will be achieving breakthroughs in core technologies to reduce dependence on Western technology, specifically in areas such as AI, as you've mentioned, Alice, also semiconductors, also quantum computing, 6G telecoms, aerospace, biomanufacturing, new materials, robotics, the list goes on and on and on. But it's crucial to recognize that largely the big impetus behind this is China's race for self-reliance. And I think when we talk about AI, it's going to be a truly amazing National People's Congress. There's going to be so many details that come out if you're interested. That will be really quite amazing. And I think when people talk about AI, often they're less than specific. They sort of talk about it in the abstract, but I just want to, I've just been doing a little bit of research on various AI products in China. And I just want to mention one of them to give people a sense of where China is, because China's approach to AI, and we'll see this in the 15th five-year plan, is what's called AI plus. That means diffusing AI into so many different uses and apps within the economy in order to effectively animate the economy and to generate revenues for companies that use them. So, I've got an example here. There's something called the Alibaba Quark AI glasses. And you put them on. They're called a living eye. And as you've got them on, if you walk through your surroundings, they will alert you to the fact that there's a coffee shop over here with maybe a special offer on matcha, or the road is blocked off over there, so you'd better go the other way round, or it'll tell you something about footfall traffic. And all the time, if you need it, it'll translate for you in real time. So there will be a voice in your ear translating what a sign means. Let's say if you're looking at it in English, it'll translate it into Chinese or vice versa. And if you're looking at items in shops, these glasses can give you immediate comparisons with prices of the same product on Taobao, which is one of Alibaba's online marketplaces. And these glasses, I mean, I'm not on commission, by the way. I'm not selling these glasses, Alibaba. I have no commercial relationship with Alibaba, but they sell for about $356 US. And they're all animated by Alibaba's key AI program, which is called Qwen or Qwen. So, I just wanted to be a little bit specific on that. The big headline number that'll come out during the National People's Congress when they mention AI and the 15th five-year plan is that China intends by 2030 for AI and AI devices to have a usage rate of over 90% in the Chinese economy, essentially, you know, creating an AI infrastructure for the first time. And then by 2035, the aim is for the Chinese economy to be completely transformed by AI. I think it's going to be really, really interesting. Alice, what have you been focused on in that regard?
