Venezuela is not Taiwan in terms of China's core interests. It is an important strategic foothold for China in Latin America. I mean, it was described as an all-weather strategic partnership back in 2023. So, this was a critical relationship that has, I think, been weakened with the Trump administration's move.
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 will respond to Trump's takeover of Venezuela, a turning point in the electric vehicle race, and China's luxury food boom. 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 rose 1.4% on its first trading day of the year. The Hang Seng index rose less than 0.1%, hovering near a 7-week high. Oil companies PetroChina and China National Offshore Oil Corporation both fell more than 3% due to their ties to Venezuela.
And MiniMax, a Shanghai-based AI company backed by both Alibaba and Tencent, is expected to begin trading on the Hong Kong stock exchange within the week at an IPO valuation of $6.5 billion. All right, let's get right into it. China just watched the US pull off a lightning strike and takeover in Venezuela, removing the leader Nicolas Maduro and threatening to take some control over the nation's oil industry. Now, this happened just hours after Beijing's top envoy was sitting with Maduro himself.
Now, this timing could be accidental or it could be the opposite. But for China, Venezuela isn't just an ideological ally. It is a significant energy supplier, a major debtor, a strategic foothold in Latin America and a test case for pushing against US dominance in the Western Hemisphere. A day after the US operation, the Chinese Foreign Ministry declared itself, quote unquote, deeply shocked and strongly condemned the flagrant use of force by the United States against a sovereign state. So the real question now isn't so much whether China is angry, it's how it will respond. Will Beijing swallow the loss and play the long game? Or does Trump's move force China to harden its posture elsewhere, from Latin America to Taiwan or even the South China Sea? What happens next could tell us a lot about the shape of US-China relations in 2026.
James, I'm very excited to be talking about this for the first episode of the year. I want to hear your takes before I dive into mine. What's your view on this?
Well, Alice, I mean, you know, when it rains, it pours. The new year starting off like this. There really couldn't be a bigger geopolitical question for China than how it reacts to this. And I think you framed it perfectly. Is it going to play the long game or are we going to see some retaliation pretty much straight off, potentially even military retaliation? Now, I'm not going to duck the question. I'm going to go straight in there. Of course, we can't know the answer. Such things are among China's most closely guarded secrets. I think that we will not see a military retaliation from China on Taiwan or in the South China Sea, at least not in the short term. I think that what you framed as China playing the long game is a much more likely scenario. And the reason I think that is because Taiwan considerations are in the background of China's reaction to this. Venezuela is a long way from China. It's a long way from Taiwan. But just let me try and sketch out why I think Taiwan and China's reaction to Taiwan is crucial in this geopolitical shadow play that we're watching. I think that the way in which the US framed its move on Venezuela as part of its attempts to shore up its backyard, to concentrate on what both Trump and Marco Rubio described as the Western Hemisphere, I think that that may give China a ray of hope or at least cause to wait and see whether the US is really serious about concentrating its geopolitical attention onto the Western Hemisphere, which of course doesn't include Taiwan or China, and thereby move away or shift the focus of its geopolitical reach away from China's sphere of influence.
And so I think if that does turn out to be the case, we may well see China taking a longer view on this. And although yes, some of China's condemnations have been fairly strong, I also think that other statements by the Chinese so far give the sense that China is really waiting to see. The two pieces of reasoning that I advanced to support my point of view is that the national security strategy which the US released in December last year identifies the Western Hemisphere as the vital interest of the US and it drops language from the Biden presidency that identified China as America's most consequential geopolitical challenge. It also doesn't even mention great power competition at all with China and it also downgrades the status of Taiwan. In the past under Biden, it used to say that the US was opposed to a shift in the status quo of Taiwan. But the new national security strategy unveiled in December last year in the US says that it, quote, does not support a change in the status quo of Taiwan. This is seen as a clear downgrading of the importance and sensitivity of the Taiwan question. So my response is I think that China is hopefully waiting to see the US redefine its geopolitical focus to its own backyard, i.e. Latin America and in this case Venezuela in particular, and thereby shift away from Taiwan and those contentious areas, the South China Sea and China itself. And if that happens, it will give China breathing space to advance its biggest priority in terms of geopolitics. But this is really hard to call at the moment, Alice. I'm really interested in your take on it. So, how do you see it?
Well, very quickly on the geopolitical front before I talk about some of the economic consequences which are worth delving into as well. It's interesting that, you know, we talk a lot about Trump's approach as the Roosevelt corollary to the Monroe Doctrine. To borrow another Roosevelt analogy, I think China's approach to this after seeing what happened in Venezuela is going to be to speak softly and carry a big stick. And what I mean by that is on one hand it will continue, I think, to pursue some kind of trade deal to try to soften some of the edges, the rough edges in the relationship. I think that they were heartened by the national security strategy document that you referred to, James, not being a direct attack on China as it had been in previous administrations. But at the same time, you know, massively increasing its investments and deployment of its military capabilities. We saw that in full display a couple of months ago at the September parade. So I think we'll have a two-track approach to this relationship and towards China's geopolitical strategy. But it is worth mentioning, James, that even although Venezuela is not Taiwan in terms of China's core interests, it is an important strategic foothold for China in Latin America. I mean, it was described as an all-weather strategic partnership back in 2023. That's sort of the second tier in terms of what we think about in terms of friendships that China has with the rest of the world. So, this was a critical relationship that has, I think, been weakened with the Trump administration's move. And if we think about the economic implications as well, it's not so much about oil because only about 5% of China's seaborne crude imports come from Venezuela. It's more about the debt that's outstanding. So we have still, by some estimates, around $10 billion if not more of debt outstanding that Venezuela owes to China. And a lot of that, traditionally from Chavez onwards to Maduro, was in the form of loan-for-oil deals. That, I think, is going to be subject to debate whether or not Chinese creditors are going to get a haircut or they're going to have to miss a lot of the debt that's owed because fundamentally, Venezuela, I think, is going to have to listen to the Americans at least in the short term in terms of some of these debt restructuring and oil developments in the region. So I think from China's vantage point this is a net loss certainly, but I agree with you, James, if we broaden it out, I don't think this materially increases China's designs to invade or blockade Taiwan. I think if I'm in Beijing watching this, I would tread carefully because the Trump administration has shown that it has the military muscle to fight in areas that it deems to be in its national core interests, which in this administration is about the Western Hemisphere. So, if I'm Xi Jinping sitting in Beijing, I'm going to sit tight a little bit and see what the Trump administration is going to do in its second half of a lame-duck presidency because remember, we have the midterms coming up. A lot can change domestically that can also transform and alter Trump's geopolitical strategy.
Absolutely. I think one of the first indicators that we're going to get of the trajectory of China-US relations after this move in Venezuela is whether or not Trump's meeting with Xi Jinping, which is supposed to take place in April, actually goes ahead. If we start seeing that, you know, that meeting is called off or people are talking about rescheduling a meeting, then I think it will be a sign that things are going badly wrong in the US-China relationship, perhaps partly because of these tensions and losses that China is going to suffer over Venezuela. But if China gets a sense that there is something to play for on its crucial priority of Taiwan, i.e. a softening of the US position on Taiwan, then I would expect China to be pushing full steam ahead for that meeting to go ahead.
Yeah, I agree. I think that will be the next litmus test in April if the two presidents meet and whether or not Taiwan is on the table, so to speak. And I'm sure that the Chinese will be testing the Americans to see to what extent the Trump administration is willing to sacrifice blood and treasure for a Taiwan campaign, which at least to my mind, when I think about the Trump clan and the people around Trump, I mean, including frankly Rubio as Secretary of State, it doesn't seem to be a top priority. I think that the focus in this administration is very much on Latin America, on defending the Western Hemisphere as opposed to being embroiled in conflicts overseas. I wanted to talk a little bit about some of the economic implications for some of the players in China because, you know, we've heard on Monday that the NFRA, the National Financial Regulatory Administration, is telling the banks that it needs to reduce its exposure to Venezuela. It's still unclear, when I was digging into the data, to the extent to which the policy banks and banks in China are exposed to Venezuelan debt. When I look at the numbers since 2007, you have over a hundred billion in loans that were lent to Venezuela to help with infrastructure, to help with oil. What's your take on this? Have you been following this, James?
Yeah, I mean, I used to write a lot about China-Venezuela because Venezuela was the poster child of the Belt and Road Initiative launched by China around 2012 in Latin America. It was the number one borrower among Latin American countries from China and China was building all kinds of infrastructure in Venezuela. There were factories, railways, roads. It really was a showcase of what China could do and China wanted to show the whole region. And I remember back in the days of former President Hugo Chavez in Venezuela talking about the alliances between China and Venezuela as like a great wall of friendship that obviously we were supposed to read in would sort of keep the Americans out. And so as you rightly say, Alice, Venezuela has been really crucial for China, but less so recently. And as you've already sketched out, I think if we boil it down to brass tacks, I think China stands to lose about 10 billion US in loans that are not repaid if the deal doesn't go to its advantage. And also there's a potential that it could lose around 2 billion in terms of investment that was intended by Chinese companies in the Venezuelan oil sector that may now not go ahead. Those are big numbers but they're not catastrophic. China has lent more than $2 trillion US dollars as part of its Belt and Road Initiative, according to AidData, a US consultancy, over the last 10 or more years. So 10 billion, it's a large number but it's not catastrophic in terms of the general reach of China's development lending around the world.
Yeah, I'm going to agree with that. I think that the bigger implication is the geostrategic one for China and Latin America. And when we broaden it out to China's allies or partners, you know, I feel very much that the axis of ill will has been weakened. Iran has been weakened substantially by Israel over the last few years. This is yet another, I think, ally and partner for China that has been weakened under this administration. So, we'll have to see what happens in 2026 with the rest of the players. Okay, we'll be back with more after a quick break and stay with us.
Welcome back. Tesla has just lost its crown. The company's sales fell 16% at the end of 2025, hit hard by the rollback of US EV tax credits. And for the first time, China's BYD has overtaken Tesla as the world's top electric car maker. It's a sharp turn for a company that once aimed to dominate global auto sales and is now betting its future on self-driving tech and robots. James, let's go right into it. I have a lot of opinions, but I want to get your take on why BYD has finally overtaken Elon Musk's Tesla. It's not been a good year for Elon Musk, 2025, I have to say.
Yeah, I mean, this is one of the great corporate rivalries of our time. I mean, it's rather like Coca-Cola versus Pepsi, Apple versus Microsoft, McDonald's versus Burger King, but this time it has an extra twist because this is an American high-tech champion versus a Chinese high-tech champion. And the bare facts are that Tesla has lost its global sales crown to BYD, the Chinese car maker, after almost a decade as the world's bestselling EV brand. This is because BYD's numbers were up very sharply in 2025. They got a 28% increase in global sales and Tesla sales were down 8.6% for the year. Of course, Tesla's sales are down partly because of tax changes in the US which removed an incentive for American consumers to buy Tesla cars. But more generally, I think, and this is where I think the main story is, BYD is steamrolling into markets all over the world, here in Europe. And I've actually driven one of the BYD cars as it came off the first shipment to Australia. There was a massive ship transporter and about 5,000 BYD cars came off the ship and I drove one in 2024 in Bremen and I have to say it took me a while to understand how to use it. There were so many kind of gadgets and dials and the car was talking to me in German which I speak very poorly. But after I got going, I have to say it was a very smooth ride. So, it's a piece of high technology. But I think the crucial point is that the BYD car that I was driving, which was the Dolphin Surf, cost about 22, 23,000. That's almost half the cost of the Tesla Model 3. And I have to say the cars are, you know, comparable in terms of their technology and their look. And I think that fact lies behind why BYD has managed to record a million sales of vehicles outside China last year. That's up an incredible 150% from 2024. So, I think Tesla is being beaten by a cheaper car that looks kind of almost as good and is technologically either on a par with Tesla or even slightly better. What's your opinion, Alice?
Well, at the risk of being contrarian, James, I'm going to take the other side of it and say that BYD may have peaked and some of these EV players may have peaked at least domestically in China. You know, just to give people a sense of the numbers, BYD sold 2.26 million electric vehicles this year. Tesla sold 1.63 million. So that's quite a big delta between the two players. But a lot of it, James, I mean, to your point, still is a domestic-driven story. I think the majority of EVs sold by BYD are still consumed by Chinese consumers. That trend that in the last few years has shifted. We're seeing more that are going out. But we can also discuss whether or not that is going to be an ongoing trajectory given some of the trade barriers that countries like the EU, for instance, are putting on China. But when I look at the domestic outlook, what's interesting to me is that the government just in the last week or so has announced that it's going to get rid of some of the tax waiver for the purchase tax on EVs. So originally there should be a 10% purchase tax. There was a full 100% exemption of that for a couple of years. As of this year, it's going to be a 50% exemption. So, effectively a 5% purchase tax on all EVs. That could have a material impact on whether or not you as a Chinese consumer are going to buy a new vehicle. But on the flip side, they've announced at the end of December that they're going to put in an $8.9 billion ultra-long special treasury bond issuance program to fund trade-ins of EVs and subsidies. So it could be that we could see after March at the NPC meeting that there is some more support for existing EV consumers trading in their old vehicles and buying new ones. But you know, we're also seeing an economy that's still trapped in some kind of deflation. Consumers are not spending as much as the government wants them to. So I'm still a little bit skeptical about the growth trajectory domestically in terms of demand for EVs. And then when we factor in some of the headwinds globally to Chinese EV providers, I'm a little bit worried. Yes, I mean, BYD has a superior product. I was just in a BYD vehicle a couple of days ago in Sydney, Australia. I'm seeing more of them on the streets for sure, but I worry a little bit about how this will be perceived by foreign governments as an influx of cheap Chinese EVs. So, I'm a bit skeptical. I'm holding my breath to see if we're going to see major legislation from countries around the world to try to limit the amount of Chinese electric vehicles because remember, autos is a huge political issue, not just an economic issue, for a lot of countries around the world. So I think this will be an interesting thing to track obviously when we think about the broader Chinese overcapacity issue and China's export engine. But one last thing that I wanted to add which I thought was super interesting, again tied to Elon Musk, is that he tweeted a couple of days ago that China's silver export controls are not good because silver is needed in many industrial processes and I think people forget that given that silver is a precious metal but it is used in cars for instance, in electric vehicles, in solar panels, in AI data centers. And you know, we've seen the creation of these export controls to restrict the global supply more recently of rare earths. Silver has been added to that list. I think this is important and worth tracking because this also could have a material impact on Tesla for instance, on other automakers because silver is still an important input into some of these processes. And when I think about some of the levers that China will use in 2026 when it is unhappy with say the Venezuela policy, with Trump's tariff policy, I think people should expect more of these precious metals, critical minerals, intermediary inputs being added to some kind of export control list and weaponized by China.
I think that's really interesting. Alice, I just want to mention one thing. You raised the issue of protectionism. Countries here in Europe or elsewhere in the world may see these Chinese EVs steamrolling into their markets and displacing sales of, you know, valued domestic brands. And so I definitely think that protectionist pressures will rise, but I don't know whether here in Europe anyway, the Europeans will actually get it together to have the unity to push forward, you know, greater tariffs or other forms of protectionism against the influx of these Chinese cars. And just one other really fascinating aspect that lies in the future is that BYD is planning on bringing its so-called flash charging batteries to Europe sometime this year. Now these flash chargers can charge a car within 5 minutes. That means that they will significantly reduce the amount of time it takes to charge your EV. The one I drove in Germany, I almost missed my plane on the way back to the UK because the charger that we found was so slow that, you know, we were standing there literally biting our nails looking at the clock wondering if we had the charge to get us to the airport. That will be a thing of the past when you can just draw up alongside a flash charger that will charge your car within 5 minutes. Now Tesla does not have that technology. It is bringing out technology, but it will be slower than the five-minute charge. What I've been able to read online says that the next Tesla supercharger will charge a battery to within a range of 200 miles within 15 minutes. So China is ahead yet again in this crucial aspect of the whole EV market.
