WEBVTT - How China Is Winning the War With Iran 0:00:02.720 --> 0:00:07.240 Bloomberg Audio Studios, Podcasts, radio News. 0:00:17.400 --> 0:00:20.320 I'm Stephanie Flanders, head of Government and Economics at Bloomberg, 0:00:20.480 --> 0:00:23.759 and this is Trumppanomics, the podcast that looks at the 0:00:23.800 --> 0:00:27.720 economic world of Donald Trump, how he's shaping and shaking 0:00:27.840 --> 0:00:30.360 the global economy and what on earth is going to 0:00:30.360 --> 0:00:35.720 happen next. Well, it's the afternoon of Wednesday, the first 0:00:35.760 --> 0:00:38.360 of April in the UK, and we're well into the 0:00:38.400 --> 0:00:41.880 fifth week of a conflict in Iran that very few 0:00:41.880 --> 0:00:46.720 of America's allies wanted or even now fully understand. They are, though, 0:00:46.960 --> 0:00:51.200 dealing with the economic consequences, biggest of which being energy 0:00:51.240 --> 0:00:55.280 prices and an Iranian stranglehold over the stretch ofform moves. 0:00:55.840 --> 0:00:59.360 Last week, we looked at this crisis as an exercise 0:00:59.400 --> 0:01:02.920 in economic state craft, one in which, against the odds, 0:01:03.200 --> 0:01:06.560 Iran seemed to be doing rather well. In this episode, 0:01:06.800 --> 0:01:09.759 we're looking east to consider the view of the crisis 0:01:09.800 --> 0:01:14.440 from Beijing. Like many, the Chinese government would almost certainly 0:01:14.480 --> 0:01:18.560 prefer the conflict hadn't started. Brings instability to a region 0:01:18.560 --> 0:01:22.920 that's increasingly important and inflicts high oil and gas prices 0:01:22.959 --> 0:01:27.080 on an economy that relies on significant energy imports in 0:01:27.120 --> 0:01:30.200 a context of a still fragile domestic recovery. And yet, 0:01:30.920 --> 0:01:32.960 and yet, the fact that Donald Trump is once again 0:01:33.000 --> 0:01:37.080 demonstrating to the world his tendency to inflict wildly unpredictable 0:01:37.080 --> 0:01:41.600 and damaging swings in policy on his allies surely also 0:01:41.680 --> 0:01:46.880 provides something of a strategic opportunity for China. It's leaders 0:01:46.920 --> 0:01:49.840 liking to say these days that it's China that is 0:01:50.200 --> 0:01:55.040 the stable and predictable world power. Well, discussing this, we 0:01:55.200 --> 0:01:58.960 have first making her Trump and Noomic's debut, Fran Wang. 0:01:59.400 --> 0:02:01.400 Fran is where in London for a few weeks, but 0:02:01.520 --> 0:02:05.200 in her normal life she's a lynchpin of our China 0:02:05.280 --> 0:02:09.200 Economy and government team in Beijing, having covered China's economy 0:02:09.240 --> 0:02:11.839 for nearly twenty years. Fran, great to have you here, 0:02:12.200 --> 0:02:16.400 Thanks for having me and from our Washington, DC bureau 0:02:16.600 --> 0:02:19.799 Adam for our Adam is the senior geoeconomics analyst for 0:02:19.840 --> 0:02:23.400 Asia Pacific Bloomberg Economics, and he previously served as the 0:02:23.520 --> 0:02:26.280 senior advisor to Vice President Kamala Harris on the Indo 0:02:26.360 --> 0:02:30.440 Pacific space and Intelligence. He also has written a piece 0:02:30.480 --> 0:02:32.919 for US on how the war in Iran is changing 0:02:32.919 --> 0:02:36.240 the relationship between the US and China. We had you 0:02:36.280 --> 0:02:39.720 on Adam last when we discussed the Trump Administration's National 0:02:39.720 --> 0:02:42.760 Security Strategy document back in December of twenty twenty five. 0:02:42.800 --> 0:02:46.160 I feel like we've had several national security strategies since then. 0:02:46.480 --> 0:02:47.720 But welcome back to the show. 0:02:48.560 --> 0:02:51.040 Great to be here. It seems that things have certainly 0:02:51.080 --> 0:02:52.000 evolved since then. 0:02:52.360 --> 0:02:58.760 Evolved is one word for it. Yes, we'll talk about 0:02:58.760 --> 0:03:01.840 the economy sort of traditional trumponomics fashion. We're going to 0:03:01.840 --> 0:03:05.799 be interweaving the economy and the geopolitics, and we will 0:03:05.840 --> 0:03:08.120 get to the economy in a minute. But Adam, you 0:03:08.160 --> 0:03:10.520 have written a piece for US overnight, the conclusion of 0:03:10.520 --> 0:03:14.240 which I thought set the stage rather well. You say 0:03:14.320 --> 0:03:17.240 the risk of Beijing from a prolonged Middle East war 0:03:17.360 --> 0:03:20.839 are real and a near term off ramp remains far 0:03:20.880 --> 0:03:24.520 from certain for now, though China has the opportunity to 0:03:24.680 --> 0:03:29.200 leverage the situation to its benefit. So just give us 0:03:29.200 --> 0:03:31.400 a sense of how you reach that conclusion, and then 0:03:31.400 --> 0:03:32.720 we'll do some unpacking. 0:03:33.680 --> 0:03:37.080 Of course, so I think you've set it up well 0:03:37.120 --> 0:03:40.360 on the intro. There's no doubt that Beijing does not 0:03:40.440 --> 0:03:43.360 look kindly on the instability growing in the region right now. 0:03:43.560 --> 0:03:47.120 While they certainly have i'm sure some happiness and seeing 0:03:47.120 --> 0:03:49.680 the United States strategically dragged into another war in the 0:03:49.720 --> 0:03:52.640 Middle East that distracts them potentially from the Indo Pacific, 0:03:52.680 --> 0:03:55.480 as we'll talk a little bit about more, they're also 0:03:55.640 --> 0:04:00.920 just very worried about the long term potential for the 0:04:01.560 --> 0:04:05.880 Gulf to remain unstable, for oil supplies to be infrequent, 0:04:06.080 --> 0:04:08.400 and to put stress on the economy at a time 0:04:08.560 --> 0:04:12.520 when things are positive on the export side but still 0:04:12.520 --> 0:04:16.599 struggling domestically, when with consumption not reaching the levels that 0:04:16.640 --> 0:04:19.679 they need to maintain the demand necessary for the amount 0:04:19.680 --> 0:04:23.040 of production they're doing internally. But at the same time, 0:04:23.520 --> 0:04:26.760 there's no doubt that there are real opportunities for Beijing 0:04:26.800 --> 0:04:28.960 in this moment, and we can kind of look at 0:04:28.960 --> 0:04:33.360 that through three different lenses. The first is diplomatic. China 0:04:33.480 --> 0:04:37.640 has spent a significant amount of effort and breath pushing 0:04:37.640 --> 0:04:40.440 a narrative since Trump came to office that it is 0:04:40.520 --> 0:04:44.400 the United States, not China, that is bringing instability to 0:04:44.480 --> 0:04:48.159 the world, and that China is the real protector of 0:04:48.320 --> 0:04:52.120 the rules based international order and even the United Nations, 0:04:52.279 --> 0:04:57.360 and turning the narrative that was so persistent under pass administrations, 0:04:57.360 --> 0:05:01.680 particularly the Biden administration, on its head. And while certainly 0:05:01.760 --> 0:05:04.479 I think most of the world has the perspective to 0:05:04.520 --> 0:05:07.200 realize that there is a lot of hypocrisy potentially and 0:05:07.240 --> 0:05:10.719 that those arguments from Beijing, the reality is that the 0:05:10.760 --> 0:05:14.039 actions of the United States has taken since President Trump 0:05:14.080 --> 0:05:18.560 came to office, starting obviously with the Liberation Day tariffs, 0:05:18.600 --> 0:05:22.479 moving towards the eventual bombing of Iran alongside Israel in June, 0:05:23.080 --> 0:05:26.719 then of course the midnight raid to seize Nicholas Maduro 0:05:26.800 --> 0:05:29.800 f of Venezuela, and now this ongoing four plus week 0:05:29.880 --> 0:05:33.760 war in Iran. There is certainly appetite to accept this 0:05:33.880 --> 0:05:36.920 narrative in a way that there wasn't before, particularly among 0:05:36.960 --> 0:05:40.280 countries that are feeling the real pain of this instability 0:05:40.279 --> 0:05:45.680 and uncertainty. At the same time, diplomatically, China historically does 0:05:45.720 --> 0:05:50.400 not take particular interest in engaging in negotiations or trying 0:05:50.400 --> 0:05:54.440 to lead piecework around the world. But here there's this 0:05:54.720 --> 0:05:58.560 rare opening for them to potentially drastically increase their role 0:05:58.600 --> 0:06:01.280 in the Middle East and their relations with key partners, 0:06:01.640 --> 0:06:04.200 and that comes from a couple main drivers. The first 0:06:04.240 --> 0:06:06.520 being that they're one of the unique countries on this 0:06:06.600 --> 0:06:09.400 planet that have positive relations with Tehran and the Gulf 0:06:09.960 --> 0:06:14.280 built around a massive economic relationship with Iran as their 0:06:14.320 --> 0:06:18.479 primary economic conduit and partner, which is even dwarfed by 0:06:18.560 --> 0:06:21.160 the relations with the Gulf that obviously relies heavily on 0:06:21.480 --> 0:06:24.840 Gulf oil exports, but also a lot of economic trade. 0:06:25.560 --> 0:06:27.800 And as a result, given the fact that the United 0:06:27.839 --> 0:06:31.200 States is now considering ending the war without addressing the 0:06:31.560 --> 0:06:33.600 flow of oil through the Strait of Hormuz and Iran's 0:06:33.600 --> 0:06:35.960 control of that, there is this potential for Iran to 0:06:36.000 --> 0:06:40.520 emerge as an intermediary negotiator to try and reopen the strait, 0:06:40.800 --> 0:06:43.080 and that's not only because of those ties, but also 0:06:43.080 --> 0:06:45.839 the simple reality that they are the largest purchaser of 0:06:45.880 --> 0:06:49.479 the oil coming through the strait itself. Obviously, there's a 0:06:49.520 --> 0:06:51.720 lot left to determine there and chin It may not 0:06:51.760 --> 0:06:55.799 take that opportunity, but they certainly could more traditionally, though, 0:06:55.880 --> 0:06:58.960 there is a simple numbers problem here for the United States. 0:06:59.200 --> 0:07:02.839 The US has expended a huge amount of its most 0:07:02.880 --> 0:07:05.680 advanced munitions in this conflict and continues to on a 0:07:05.720 --> 0:07:08.200 day to day basis, and the reality is that those 0:07:08.240 --> 0:07:11.240 long range missiles like Tomahawk cruise missiles and those defensive 0:07:11.560 --> 0:07:15.880 missiles like Patriot interceptors are essential for any sort of 0:07:16.320 --> 0:07:20.400 Indo Pacific contingency, whether that be the United States trying 0:07:20.440 --> 0:07:25.480 to protect Taiwan or act in protection of the Philippines 0:07:25.480 --> 0:07:28.640 and the South China Sea contingency, and all of that 0:07:28.800 --> 0:07:31.800 leaves China in the mid term in a much better position, 0:07:31.920 --> 0:07:34.760 potentially militarily. The other part of that, too, is that 0:07:34.760 --> 0:07:37.680 we've seen a degradation in US assets through this conflict. 0:07:37.920 --> 0:07:41.400 We saw the loss of a command control aircraft called 0:07:41.400 --> 0:07:45.480 an a wax over the weekend, a strike that demonstrated 0:07:45.520 --> 0:07:48.480 some support that Iran maybe getting from countries like Russia. 0:07:49.000 --> 0:07:52.280 But nonetheless, the United States has few of these capabilities 0:07:52.360 --> 0:07:54.800 left in the world, and while it is certainly working 0:07:54.840 --> 0:07:58.600 to reconstitute them, those are years away, and as this 0:07:58.680 --> 0:08:01.400 war is prolonged, we may see the additional losses that 0:08:01.480 --> 0:08:05.480 further undermined its strategic position and its ability to enact 0:08:05.680 --> 0:08:09.520 potentially its military plans in the Pacific. The last part 0:08:09.520 --> 0:08:12.480 of this, I think we shouldn't forget is simply watching 0:08:12.480 --> 0:08:15.520 and learning from what the United States is doing. I 0:08:15.560 --> 0:08:17.720 think It's probably not lost to most people that this 0:08:17.800 --> 0:08:20.320 is the largest military operation the United States has undertaken 0:08:20.480 --> 0:08:22.800 arguably since the two thousand and three invasion of Iraq, 0:08:23.160 --> 0:08:25.760 and a lot has changed since two thousand and three 0:08:25.800 --> 0:08:27.440 in terms of the way of war and the way 0:08:27.440 --> 0:08:30.000 the United States plans to fight a war. And so 0:08:30.160 --> 0:08:34.880 here China is both I'm sure, concerned by the effectiveness 0:08:34.880 --> 0:08:37.760 of US capabilities, but also learning from what they've seen 0:08:37.800 --> 0:08:40.320 so far and taking the opportunity to see how the 0:08:40.400 --> 0:08:44.640 US is integrating drones, new missile systems, and its air 0:08:44.679 --> 0:08:48.040 power and naval power in a modern conventional fight. And 0:08:48.080 --> 0:08:49.920 I want to be clear, obviously a fight in the 0:08:49.920 --> 0:08:53.000 Indo Pacific, particularly over Taiwan, would have a very different character, 0:08:53.480 --> 0:08:57.280 but the tools would be the same, and there's much 0:08:57.320 --> 0:08:59.959 to be taken from this, and those who follow the 0:09:00.400 --> 0:09:03.280 know China actually built its modern military very much off 0:09:03.280 --> 0:09:06.000 of the lessons of the US invasion of Iraq in 0:09:06.040 --> 0:09:08.880 their early nineties and Desert Storm, and so here's another 0:09:08.880 --> 0:09:11.440 opportunity for them to learn and grow and be more 0:09:11.480 --> 0:09:14.640 effective in any sort of contingency. Not to belabor this 0:09:14.679 --> 0:09:18.880 too much is simply economic. Is the reality that China 0:09:19.120 --> 0:09:23.520 has positioned itself through its massive growth in green energy, 0:09:23.720 --> 0:09:27.000 its own domestic energy industry, and its reserves of oil 0:09:27.080 --> 0:09:30.559 that is brought in over the last several years to 0:09:30.600 --> 0:09:32.680 be able to weather this storm, and not only weather 0:09:33.120 --> 0:09:36.280 the short term storm, but potentially serve as a gas 0:09:36.320 --> 0:09:38.880 station for other parts of Asia. And we're starting to 0:09:38.880 --> 0:09:42.560 see that already with these small but important deliveries of 0:09:42.640 --> 0:09:46.040 key fuel stocks to the Philippines and Vietnam, and potentially 0:09:46.040 --> 0:09:49.480 more to come, building on goodwill, highlighting the unique role 0:09:49.559 --> 0:09:51.840 China can play as a stabilizing influence in the region 0:09:52.600 --> 0:09:56.440 and demonstrating that China is a country that can be 0:09:56.559 --> 0:10:00.160 prepared and can prosper through these types of crises. The 0:10:00.200 --> 0:10:03.920 repercussions from this war are extreme. There is no doubt 0:10:04.080 --> 0:10:06.880 that countries are going to have to rethink their energy 0:10:06.880 --> 0:10:11.640 security and their China also stands to gain the China 0:10:11.720 --> 0:10:14.240 has become by far the largest producer of green and 0:10:14.280 --> 0:10:19.000 renewable energy technology in the world, and obviously the most capable, 0:10:19.080 --> 0:10:23.280 it seems and commercially viable source of electric vehicles, both 0:10:23.280 --> 0:10:25.080 of which are going to be in high demand as countries, 0:10:25.120 --> 0:10:28.720 particularly in Southeast Asia and Africa, seek to insulate themselves 0:10:28.720 --> 0:10:29.600 from further crises. 0:10:30.040 --> 0:10:32.760 Well, that's the fantastic survey. Thanks Adam. And actually, and 0:10:32.800 --> 0:10:35.280 you've also taken us a little bit onto the economy. 0:10:35.400 --> 0:10:37.480 We're going to touch on a few things and sort 0:10:37.520 --> 0:10:40.679 of go deeper into the economy. But a few things 0:10:40.480 --> 0:10:44.840 that Adam mentioned there it's worth remembering since we haven't 0:10:44.840 --> 0:10:47.400 talked about the Chinese economy for a while on this show. 0:10:48.040 --> 0:10:53.560 The basic state of China's growth coming into this year, 0:10:53.679 --> 0:10:58.240 coming into this crisis, I mean it's recovering, but still 0:10:58.400 --> 0:11:03.040 quite subject to deflation and excess supply is still very 0:11:03.040 --> 0:11:06.640 dependent on exports. What's the basic state of the economy. 0:11:07.280 --> 0:11:12.120 Yeah, the economy has been recovering since it reopened from 0:11:12.240 --> 0:11:15.679 COVID zero four years ago now or three to four 0:11:15.760 --> 0:11:20.200 years ago now. However, the recovery has always been like 0:11:20.520 --> 0:11:26.439 two speed, with production staying very strong but consumption struggling 0:11:26.440 --> 0:11:29.640 to pick up. And the key reason why production has 0:11:29.679 --> 0:11:33.840 been strong is because of exports, and exports contributed to 0:11:34.240 --> 0:11:37.760 nearly a third of GDP growth last year, which was 0:11:37.800 --> 0:11:42.520 the highest since nineteen ninety seven. So exports have been 0:11:42.640 --> 0:11:46.840 a key support for China's growth, especially if you think 0:11:46.880 --> 0:11:51.680 about how long deflation has been plaguing the economy for years, 0:11:52.080 --> 0:11:57.000 and also domestic consumption has been so weak. Retail sales 0:11:57.080 --> 0:12:01.880 growth was still quite tapid despite government subsidized cash for 0:12:01.960 --> 0:12:07.120 clunkers program for like two years. So really domestically, China's 0:12:07.160 --> 0:12:10.520 economy is still suffering from over capacity as you mentioned, 0:12:11.080 --> 0:12:15.840 and also years long housing slump which really battered consumer 0:12:15.880 --> 0:12:18.479 and business confidence most countries. 0:12:19.040 --> 0:12:23.120 This is really an unwelcome shock, and I'm thinking, you know, 0:12:23.120 --> 0:12:25.360 I'm obviously sitting in the UK, but we're constantly doing 0:12:25.360 --> 0:12:28.040 the numbers of what it is going to mean for growth, 0:12:28.160 --> 0:12:32.600 for inflation, to have this significant rise in energy prices. 0:12:32.760 --> 0:12:34.959 I mean, China's not immune to that, right. 0:12:35.400 --> 0:12:39.560 Yeah, I mean China has been suffering from deflation, so 0:12:40.120 --> 0:12:44.680 price rises should be welcome. However, it depends on how 0:12:45.000 --> 0:12:49.040 broad the price rise will be. Judging from the current situation, 0:12:49.200 --> 0:12:53.960 you could see that most likely beneficiary would be upstream industries, 0:12:54.440 --> 0:13:00.920 oil minerals, resources companies. Downstream companies will find it extremely 0:13:01.000 --> 0:13:05.880 hard to pass the costs onto consumers because completion is 0:13:05.960 --> 0:13:09.680 still so fierce in the country. And if you think 0:13:09.720 --> 0:13:14.920 about how deeply rooted the excess capacity problem is The 0:13:14.960 --> 0:13:19.080 government has been launching the so called anti involution campaign 0:13:19.360 --> 0:13:22.960 for many many months now. The effect, however, is still 0:13:23.080 --> 0:13:27.559 quite limited. Unlike ten years ago when a similar campaign 0:13:27.640 --> 0:13:32.160 was launched, this time around, companies suffering from overcapacity are 0:13:32.320 --> 0:13:37.400 in privately owned industries and sectors the government may want 0:13:37.440 --> 0:13:42.000 to support, like renewable energy, so that makes it harder 0:13:42.040 --> 0:13:46.080 for the government to take a strong handed administrative approach 0:13:46.440 --> 0:13:48.520 to addressing this issue this time around. 0:13:48.800 --> 0:13:52.080 Such an ugly word, but they the involution. We should 0:13:52.280 --> 0:13:55.360 remind people what that means. I mean, the basic sense 0:13:55.440 --> 0:13:56.920 is that some of the reason that they've done so 0:13:57.000 --> 0:13:59.120 well in all these new technologies and other things in 0:13:59.160 --> 0:14:02.479 these industries is that they've got lots of companies competing. 0:14:03.000 --> 0:14:05.840 But that produces excess investment, excess supply. 0:14:06.040 --> 0:14:09.559 Is that the basic yeah, and lead to workers working 0:14:09.920 --> 0:14:14.080 extremely long hours without properly compensated. 0:14:13.800 --> 0:14:15.600 Which you could also say is a core part of 0:14:15.640 --> 0:14:19.120 the Chinese economic model. Just one last one for now 0:14:19.200 --> 0:14:22.280 for you, Fran again, just to remind us, because it's 0:14:22.320 --> 0:14:24.720 confusing when we talk about how they've built up their 0:14:24.840 --> 0:14:29.000 energy sufficiency, but they're also have been getting a lot 0:14:29.000 --> 0:14:32.880 of oil out of Iran. What is their capacity to 0:14:32.880 --> 0:14:37.040 withstand reduced supplies of oil and gas from the rest 0:14:37.080 --> 0:14:37.520 of the world. 0:14:38.080 --> 0:14:41.720 Yeah, as Adam mentioned, China has been building oil reserves 0:14:41.720 --> 0:14:45.800 over the past few years. Some analysts put China's oil 0:14:45.880 --> 0:14:51.200 reserves as sufficient for meeting more than eighty days of 0:14:51.600 --> 0:14:55.160 refining needs. So I'd say there is no short term 0:14:55.600 --> 0:15:01.360 immediate shortage oil shortage concern. However, for long term, even 0:15:01.440 --> 0:15:05.440 though China has been pushing for more renewable energy for 0:15:05.520 --> 0:15:08.640 more than a decade now, renewable energy still accounts for 0:15:08.720 --> 0:15:12.480 just about twenty percent of its total energy consumption. More 0:15:12.520 --> 0:15:16.600 than fifty percent of its energy consumption is met by coal, 0:15:17.320 --> 0:15:22.360 which China fortunately has abundant reserves of. However, if we 0:15:22.440 --> 0:15:27.280 want to reach present She's carbon neutral goals, and also 0:15:27.440 --> 0:15:31.240 if we don't want to repeat the serious air pollution 0:15:31.520 --> 0:15:35.600 problems were about decade ago, there's no way that China 0:15:35.680 --> 0:15:38.680 can switch back to coal in a massive way. So 0:15:38.840 --> 0:15:42.160 there's always a trade off you have to balance, and 0:15:42.400 --> 0:15:45.280 I think this well, the war in Iran will just 0:15:45.600 --> 0:16:00.760 strengthen China's determination to expound further into renewable energy. 0:16:02.040 --> 0:16:03.640 I guess on the one hand, China is trying to 0:16:03.640 --> 0:16:06.760 show off, it kind of got its strategy. It was 0:16:06.760 --> 0:16:09.160 ahead of the curve and preparing itself for these things. 0:16:09.200 --> 0:16:13.960 But it also wants to, where it makes sense, use 0:16:14.000 --> 0:16:17.280 some of its excess capacity or some of its strength 0:16:17.320 --> 0:16:20.600 in these sectors to make friends and influence people. So 0:16:20.840 --> 0:16:21.840 where are we seeing that? 0:16:22.400 --> 0:16:24.240 I think the reality is that a lot of this 0:16:24.440 --> 0:16:27.960 was already underway, right the push, particularly in parts of 0:16:28.000 --> 0:16:33.320 Southeast Asia and even in Europe, to push heavily into renewables, 0:16:33.480 --> 0:16:37.040 and the reality being to do that in most industries, 0:16:37.080 --> 0:16:41.280 particularly solar and wind. You're really talking about Chinese technology. 0:16:41.480 --> 0:16:44.280 Certainly there are some European companies putting out wind turbines 0:16:44.320 --> 0:16:47.360 as well, but for Southeast Asia this is a China question. 0:16:47.600 --> 0:16:50.800 And what we're seeing here now is less a new 0:16:50.880 --> 0:16:55.240 movement towards renewables, but rather an effort to revitalize and 0:16:55.240 --> 0:16:58.560 potentially speed up that transition. Now, you know, it's still 0:16:58.640 --> 0:17:01.400 very early going here. Were as much as this war 0:17:01.480 --> 0:17:04.240 seems to have gone on forever, it's only been four weeks. 0:17:04.440 --> 0:17:08.440 And if the crisis ebbs or starts to really stop 0:17:08.480 --> 0:17:10.800 here in the near term and the straight reopens, we 0:17:10.840 --> 0:17:13.600 may not see the same push with the same urgency 0:17:13.600 --> 0:17:15.760 that people are talking about it now. But I think 0:17:15.800 --> 0:17:19.080 that right now that's where we would expect to see 0:17:19.119 --> 0:17:22.399 further growth. We've already seen big inroads from companies like 0:17:22.440 --> 0:17:26.439 BYD and other electric vehicle companies throughout Southeast Asia now 0:17:26.480 --> 0:17:30.760 increasingly Europe, and efforts to push into other regions in 0:17:30.800 --> 0:17:34.399 particularly in the Middle East. So I think all of that, 0:17:34.520 --> 0:17:37.000 you know, the Chinese stand to benefit even if there's 0:17:37.119 --> 0:17:39.120 marginal change in the near term. 0:17:39.280 --> 0:17:43.600 This is an opportunity for China to sell its net 0:17:43.800 --> 0:17:48.240 zero technology and products to other goods. But also short 0:17:48.320 --> 0:17:52.040 term it can sell some fossil fuels to countries that 0:17:52.119 --> 0:17:55.160 have caught short. So what's happening there. 0:17:55.880 --> 0:17:59.400 What we've seen so far is very much an evolution, 0:18:00.119 --> 0:18:02.399 you know, since the start of the war, as the 0:18:02.480 --> 0:18:06.280 air and the pipeline of oil to Asia kind of 0:18:06.280 --> 0:18:09.320 moves its way through and starts to hit Asian markets 0:18:10.000 --> 0:18:12.280 that's been created by the shutdown of the Strait of Hormuz. 0:18:12.440 --> 0:18:17.280 And for some countries like China, Japan, Korea, Australia, they've 0:18:17.280 --> 0:18:21.080 got reserves, they have options, they have budget flexibility. But 0:18:21.160 --> 0:18:25.199 for others, particularly in Southeast Asia, who have much tighter 0:18:25.280 --> 0:18:29.360 fiscal realities. We're already starting to see this crisis turn 0:18:29.440 --> 0:18:34.360 into a shortage situation with key products, and we saw 0:18:34.400 --> 0:18:38.040 a declaration of an energy emergency in the Philippines. We've 0:18:38.080 --> 0:18:42.520 seen countries including Vietnam, Indonesia, and the Philippines discuss cutting 0:18:42.920 --> 0:18:47.080 flights between certain countries because of a lack of jet 0:18:47.080 --> 0:18:51.240 fuel availability because of limited storage in those countries. And 0:18:51.640 --> 0:18:54.360 so far, the limited reporting we have on what China 0:18:54.480 --> 0:18:56.440 the actions China has taken is to try and address 0:18:56.480 --> 0:18:58.880 those immediate concerns in some of these countries, and that's 0:18:58.880 --> 0:19:01.520 been with the delivery of jets fuel and diesel and 0:19:01.920 --> 0:19:06.080 trying to provide a little bit of its refining capability 0:19:06.400 --> 0:19:10.200 to meet its neighbors partners' needs. To keep in mind, 0:19:10.240 --> 0:19:11.919 this is also happening on top of the fact that 0:19:12.040 --> 0:19:15.600 China put in place and export ban on refined products 0:19:15.840 --> 0:19:18.600 almost immediately following the closure of the Strait of frommus 0:19:18.840 --> 0:19:22.119 which highlights how they are very clearly strategically thinking about 0:19:22.160 --> 0:19:25.520 how to deploy these refined products less for profit but 0:19:25.680 --> 0:19:27.000 more for diplomatic gain. 0:19:27.760 --> 0:19:30.360 I'm struck because in other context we talk about there 0:19:30.400 --> 0:19:34.920 being really quite difficult relations with Philippines, the Philippines out 0:19:34.960 --> 0:19:41.960 in the ocean, when they're increasingly fractious territorial disputes. Is 0:19:42.000 --> 0:19:43.960 there any sense that that could come into any of 0:19:44.000 --> 0:19:45.080 these conversations. 0:19:45.880 --> 0:19:48.840 I certainly can't speak to how Beijing is viewing this 0:19:48.920 --> 0:19:52.639 current moment, but the actions do speak clearly to the 0:19:52.680 --> 0:19:56.080 idea that they are both being flexible and creative in 0:19:56.119 --> 0:20:00.359 how they're utilizing these resources and seeing opportunity and seeing 0:20:00.359 --> 0:20:04.280 a moment to potentially reframe the discussion, even if marginally, 0:20:04.440 --> 0:20:07.960 in the domestic populations and the political environments in these countries. 0:20:08.280 --> 0:20:10.560 You know, Vietnam is a very different situation in terms 0:20:10.600 --> 0:20:14.480 of its historic political relationship, but even there, it's obviously 0:20:14.560 --> 0:20:17.680 a stressed relationship over the South China Sea and broader 0:20:17.720 --> 0:20:20.320 competition between the two And so the fact that they 0:20:20.359 --> 0:20:22.840 were willing to move quickly to deliver, just to be clear, 0:20:22.840 --> 0:20:26.480 are relatively small cargoes but would have a tangible impact, 0:20:27.119 --> 0:20:30.439 you know, does say something about them thinking creatively about 0:20:30.480 --> 0:20:33.840 how to use their leverage in this moment, with the 0:20:33.880 --> 0:20:36.159 idea that you know, they may not be able to 0:20:36.200 --> 0:20:38.119 do this for very long, depending on how long this 0:20:38.160 --> 0:20:38.760 conflict goes. 0:20:39.480 --> 0:20:41.239 Mid Fran it sort of feels like, I mean, all 0:20:41.280 --> 0:20:46.199 these potential levers economic and diplomatic that the Chinese can 0:20:46.240 --> 0:20:49.359 be thinking about deploying now. I mean it speaks to 0:20:49.400 --> 0:20:52.119 this the level of sort of redundancy that they've built 0:20:52.160 --> 0:20:54.919 into their economy. I guess President she Jen calls it 0:20:54.960 --> 0:20:57.080 the fortress economy. 0:20:57.200 --> 0:20:57.359 You know. 0:20:57.359 --> 0:20:59.000 It feels almost a bit like, you know when they 0:20:59.040 --> 0:21:01.199 sort of try and reassure you about jumbo jets and 0:21:01.200 --> 0:21:03.240 they say, you know, there's a million things that go wrong, 0:21:03.280 --> 0:21:05.840 and we have got another engine, and we've got you know, 0:21:05.880 --> 0:21:08.960 all these different things that we can resort to. It 0:21:09.440 --> 0:21:13.720 feels like China has all these additional spare engines sitting 0:21:13.760 --> 0:21:17.080 there and alternative planes, and the rest of the world 0:21:17.119 --> 0:21:20.240 has left itself rather vulnerable despite having gone through the 0:21:20.280 --> 0:21:24.399 COVID experience. Is this ultimately sort of bad news for 0:21:24.440 --> 0:21:26.760 the rest of us though, because it means that it's 0:21:26.800 --> 0:21:29.600 making the case for having all of this excess supply 0:21:30.040 --> 0:21:33.880 and redundancy in the Chinese economy, which, in if you're 0:21:33.880 --> 0:21:38.280 competing with Chinese products overseas, not much fun at all. 0:21:38.960 --> 0:21:42.760 Yeah, I think the price competitiveness will be there to stay. 0:21:43.520 --> 0:21:47.680 And also in terms of policymakers thinking. President she himself 0:21:47.760 --> 0:21:51.520 and the polar Buro have repeatedly stressed on the so 0:21:51.680 --> 0:21:56.160 called bottom line thinking, which I think it's basically always 0:21:56.400 --> 0:22:01.120 think about what you can do in area of crisis, 0:22:01.600 --> 0:22:05.720 even if your situation now is still quite safe. Our 0:22:05.760 --> 0:22:10.200 government sources, while speaking to us before, actually said frankly 0:22:10.840 --> 0:22:14.080 that one of the reasons that they are not in 0:22:14.119 --> 0:22:18.199 the rush to address of a capacity in sectors like 0:22:18.760 --> 0:22:23.280 renewable energy and other energy sectors is because of the 0:22:23.320 --> 0:22:27.200 possibility of a crisis like in a war. So and 0:22:27.240 --> 0:22:29.800 that was quite early, it was like a couple of 0:22:29.880 --> 0:22:30.280 years ago. 0:22:30.720 --> 0:22:33.200 We should still remember though that you may have lots 0:22:33.240 --> 0:22:36.880 of spare sources of energy and back up this back 0:22:36.920 --> 0:22:38.879 up that one thing they haven't got as a backup 0:22:38.920 --> 0:22:43.040 engine is anything to replace foreign demand to fuel their economy. 0:22:43.080 --> 0:22:45.320 As you mentioned at the start, they're very dependent on 0:22:45.760 --> 0:22:49.600 foreign export. If this continues, the risk of a global 0:22:49.640 --> 0:22:53.640 recession is what not one that China is well prepared 0:22:53.640 --> 0:22:54.760 to withstand right now? 0:22:54.840 --> 0:22:58.520 Right yeah, I think that would be a true concern 0:22:58.680 --> 0:23:03.760 for Beijing. If for demand collapse is because domestic demound 0:23:03.960 --> 0:23:06.320 I think in the past it was driven by two 0:23:06.400 --> 0:23:12.960 key sectors infrastructure and property. But infrastructure investment has been 0:23:13.240 --> 0:23:19.520 very inefficient now because of the saturation issue and because 0:23:19.520 --> 0:23:24.680 of the slowing pace of urbanization, and in terms of property, 0:23:24.760 --> 0:23:28.879 the government seems to be quite reluctant to repeat the 0:23:29.200 --> 0:23:33.480 aggressive stimulus it applied to rescue the sector back in 0:23:33.560 --> 0:23:36.560 probably twenty to fifteen. I think one of the reasons 0:23:36.600 --> 0:23:41.240 is because they hope to replace property as a growth 0:23:41.240 --> 0:23:48.159 engine with more innovative tach sector growth. So that makes 0:23:48.200 --> 0:23:53.359 it quite hard for the Chinese government to really find 0:23:53.480 --> 0:23:57.159 another immediate replacement for foreign demand. 0:23:57.480 --> 0:24:00.399 Of course, it's true of everybody. We're all wishing that 0:24:00.440 --> 0:24:03.119 it's not going to last too long. Of course, we 0:24:03.240 --> 0:24:07.520 tend to say the big disadvantage for China is how 0:24:07.600 --> 0:24:13.320 little it's used its military in fifty years, almost forty years. 0:24:13.440 --> 0:24:17.840 When people talk about this having in some sense lowered 0:24:17.880 --> 0:24:21.959 the bar for China to flex its muscles more than 0:24:22.000 --> 0:24:26.480