Now boarding: America seizes an Iranian ship

Summary

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Podcast Summary

Now boarding: America seizes an Iranian ship

The Economist Podcasts – The Intelligence
Date: April 20, 2026
Hosts: Jason Palmer & Rosie Blore
Key Guests: Greg Karlstrom (Middle East correspondent), Sarah Larniuk (Deputy Editor), Don Weinland (China Business Editor)

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Overview

This episode unpacks three global developments:

1. The escalating tension in the Strait of Hormuz after the US seizures of an Iranian tanker, and potential impact on ceasefire and oil markets.
2. A worrying update from Chernobyl after a Russian drone strike pierced its protective dome, exploring the risks to nuclear safety and ongoing repairs.
3. The expansion of Western fast-food chains into rural China and the changing strategies behind global and domestic brands.

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Segment 1: America’s Seizure of an Iranian Ship in the Strait of Hormuz

Starts: 02:33

Background

A shaky ceasefire between the US and Iran is under strain after American forces disabled and boarded an Iranian-flagged tanker in the Strait of Hormuz. The move enforces an American blockade and clouds upcoming peace talks, heightening fears of renewed conflict.

Key Discussion Points

• Military Enforcement:

  • This is the first time the US has militarily enforced its blockade in the Strait.
  • Greg Karlstrom: “There was an Iranian ship, a tanker, trying to sail out of the Persian Gulf through the straits. The Americans say they warned it to stop. It kept going, and so they fired at its engine room, disabling it, and then they boarded it afterwards.” (03:42-04:00)

• Is the Strait Open or Closed?

  • Confusion followed a tweet by Iran’s foreign minister, Abbas Aragchi, suggesting the strait was open if vessels coordinate with Iran’s IRGC and pay a toll.
  • Karlstrom: “In practice, what that means is it's not open. It's only open to a limited number of vessels... Everyone was very excited. Then the pushback started in Iran. The Revolutionary Guard said, no, the strait is not open except for vessels that we approve.” (04:13-05:40)
  • Result: Strait is essentially closed except for a “very, very small number” of pre-approved ships.

• Iranian Response and Options

  • Rhetoric includes threats of retaliation (e.g., claims Iran fired drones at US vessels—unverified), but no confirmed escalation yet.
  • Three Iranian options outlined:
    1. Attack US warships (high risk of full ceasefire collapse)
    2. Attack commercial vessels (has occurred, but deterrent value low)
    3. Do nothing, maintain a mutual blockade, and negotiate
  • Karlstrom: “They could just accept that there's this mutual blockade now on both sides... and the only way this is going to get resolved is in negotiations.” (06:28-07:01)

• Outlook for Peace Talks (Tuesday, Islamabad):

  • The US is prepared, with VP JD Vance leading a delegation.
  • Iran sending mixed signals, suggesting they won’t attend unless the blockade ends; similar pre-talk posturing has been seen before.
  • Karlstrom: “Perhaps, again, this is just brinkmanship from Iran. They're trying to extract whatever concessions they can before the talks even take place. Or perhaps they're serious. We don't know yet.” (07:56-08:22)

• Diverging Perspectives:

  • Iran views the US move as unnecessary escalation despite willingness to negotiate;
  • The US frames its action as enforcing parity because Iran never delivered on the promise to reopen the Strait.
  • Karlstrom: “From the American side, there was a belief that... Iran had committed to reopen the Strait of Hormuz... So the Iranians did not deliver on that promise. And so... America is now just doing the same thing on its own side.” (08:36-09:18)

• Markets and Political Calculation:

  • Oil markets reacted strongly to rumors and official statements; Brent crude plunged on Friday then rebounded $10 by Monday.
  • Karlstrom: “I think there's still this belief in the markets that Trump can bend reality to his will by saying things or by tweeting things. And apparently that was extended to Abbas Aragchi as well last week. But it's simply not the case.” (09:56-10:46)

• Wider Diplomatic Gap:

  • Even if talks proceed, the US is no longer demanding Iran never enrich uranium ( a past nonstarter) but wants a prolonged moratorium. Iranians want less restriction.
  • “There is just still a huge gap between what they are asking for... Even if you can reach an agreement on those, you have so many other detailed points that need to be negotiated.” (11:05-11:46)

Notable Quotes

• “Right now, the strait is not open to anyone except the very, very small number of vessels that can coordinate with the Iranians. And pay the Iranians to exit.” (Greg Karlstrom, 05:32)

• “The only way you really get a durable solution for the markets is by ending the war, is by getting to some sort of agreement that reopens the Strait of Hormuz and that reassures shippers and oil companies... that the war isn't going to restart.” (Greg Karlstrom, 10:22)

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Segment 2: Chernobyl’s Protective Dome Damaged by Russian Drone

Starts: 13:41

Background

With the 40th anniversary of the 1986 Chernobyl disaster approaching, the show discusses the impact of a 2025 Russian drone strike that pierced the “new safe confinement” dome over reactor four, raising alarm about nuclear safety amid war.

Key Discussion Points

• The Dome’s Vital Role:

  • The dome (new safe confinement), built at a cost of $1.6 billion and meant to last a century, was supposed to hermetically seal the aging sarcophagus and buy time for safely dismantling reactor four.

• Extent of Damage:

  • “The damage is very, very significant, will be very difficult to repair, and currently the new safe confinement doesn't fulfill its functions. So it is currently a useless building.” (Balthazar Lindauer, 17:01)

• On-the-Ground Description:

  • Sarcophagus was originally a hurried 1986 Soviet structure, then enclosed by the new dome in the 2010s to limit corrosion and radiation risk.
  • A direct drone strike on Feb 14, 2025, punched a hole; fire that ignited in the cladding burned for weeks, with embers smoldering throughout.

• Risk and Repair:

  • Engineers chose to fix the dome onsite (not offsite), despite high radiation exposure for workers; cost is at least €500 million and will likely rise.
  • “A few years without humidity and temperature control exposed the old sarcophagus to greater threats of corrosion and irreparable damage.” (Sarah Larniuk, 20:58)
  • Raffaele Grossi (IAEA Dir. Gen.), via Pavlo: “So far there has been no radioactive release, but the risk will only grow without repairs because the whole shelter object is unstable and the new building is unable to confine a release.” (21:25)

• International Funding Challenge:

  • Raising support for repairs is tough amid broader fatigue and competing war priorities.

Memorable Moments

• Larniuk’s Tour:
  • “This involved passing through umpteenth security gates and following so many security precautions that the team there on site follow every single day.” (13:58)
  • Viewing videos of flames and smoldering, seeing the extent of internal gutting, and learning that temporary repairs have not restored full safety.

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Segment 3: Western Fast Food Chains on China’s New Frontier

Starts: 22:55

Background

Western fast food chains such as McDonald’s and KFC, long fixtures in China’s urban areas, are now expanding into rural towns—a reversal from previous retreat.

Key Discussion Points

• Rural China as ‘Burger Frontier’:

  • Cities like Hanchuan feel rural, yet McDonald’s and others are opening new outlets in malls as local fascination draws crowds.
  • “Places like Hanchuan are really becoming the front line of fast food.” (Don Weinland, 23:31)

• Undercurrents of Competition:

  • Domestic chains (such as Dicos, CNHLS) started in small cities and now push into metropolises, while global brands push outward.
  • Deep market saturation: “70% of KFCs in China are within 10 minutes bicycle ride of another KFC. It's about 60% for McDonald's.” (Weinland, 24:26)

• New Ownership, New Strategies:

  • Major Chinese investors now back Western brands (e.g., McDonald’s majority-owned by state-backed CITIC Capital), supplying the local connections and cash to expand into riskier, less lucrative areas.

• Challenges to Success:

  • Issues with real estate (finding Western-style malls), supply chains, lower-priced local rivals, and consumer habits.
  • “Chinese brands... sell at a much cheaper price. They're much more attuned to the local market, and they're going to give McDonald's and KFC a lot of competition in these places.” (Don Weinland, 26:54)

• Opportunities:

  • Initial novelty means local consumers are curious and footfall is high; sustaining interest is the challenge.

Notable Quotes

• “Do Chinese farmers want to eat McDonald's and drink Starbucks? We're going to find out over the next couple years.” (Don Weinland, 26:54)

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Timestamps for Key Segments

• Strait of Hormuz Seizure & Analysis: 02:33 – 11:49
• Chernobyl Drone Strike & Nuclear Risk: 13:41 – 21:43
• Western Fast Food in Rural China: 22:55 – 28:14

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Tone & Language

The conversation is measured but urgent, especially around the Middle East and Chernobyl. Field reportage brings detail and immediacy, as correspondents relay first-hand observations. Discussion is data-driven, with market analysis and political speculation included.

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Conclusion

This episode captures the global ripple effects of conflict (in the Gulf and Ukraine) and evolving patterns in global business (in rural China).

• The US-Iran spat in Hormuz illustrates how fragile peace, oil markets, and diplomacy remain intertwined.
• The drone strike on Chernobyl’s dome provides a chilling reminder of persistent nuclear risk in a war zone.
• China’s burger frontier coverage encapsulates how economic ambition and cultural curiosity collide in today’s rapidly changing world.

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For deeper dives, visit The Economist’s web resources or sister podcasts as suggested by the hosts throughout the episode.

Transcript

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[Jason Palmer]

The Economist. Hello and welcome to the Intelligence from the Economist. I'm Jason Palmer.

[Rosie Blore]

And I'm Rosie Blore. Every weekday we provide a fresh perspective on the events shaping your world.

[Jason Palmer]

Ten years ago, an enormous hangar was slid into place over the site of the Chernobyl accident in Ukraine, intended to isolate it for a century. Last February, a Russian drone blew a hole in it. We paid a visit asking just how much damage was done,

[Rosie Blore]

and McDonald's and other Western fast food joints have been in China for decades and spurred local competitors. But our correspondent reports foreign chains are now gaining ground again. Rural China is the final burger frontier.

[Jason Palmer]

But first, The shaky ceasefire between America and Iran got even shakier. Overnight.

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[Greg Karlstrom]

Vacate your engine room.

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[Jason Palmer]

American forces fired at an Iranian flagged ship in the Strait of Hormuz before Marines boarded and seized the vessel. Exactly what's going on in the Strait has been A subject of some confusion, with markets reacting on Friday as if a full opening were just around the corner. Peace talks scheduled for this week are now up in the air. The existing ceasefire expires on Wednesday. And after this American flex in the strait, a return to full on war is looking worryingly possible.

[Greg Karlstrom]

This is the first time the Americans have actually had to enforce their blockade of the Strait of Hormuz.

[Jason Palmer]

Greg Karlstrom is a Middle east correspondent for the Economist.

[Greg Karlstrom]

There was an Iranian ship, a tanker, trying to sail out of the Persian Gulf through the straits. The Americans say they warned it to stop. It kept going, and so they fired at its engine room, disabling it, and then they boarded it afterwards. So after days of talking about how the strait was closed from the American side, they have now militarily enforced that blockade.

[Jason Palmer]

And there had been confusion about whether it was open. It was closed. Some conflicting information as you understand it. Was it open? Was it closed? Is it closed now?

[Greg Karlstrom]

Short answer is, yes, it is closed and it was closed. I think there was a lot of misinterpretation at the end of last week of a tweet from Abbas Aragchi, the Iranian Foreign Minister. He posted that because America had forced Israel to stop its war in Lebanon, the strait was now open, subject to coordination with the irgc, the Islamic Revolutionary Guard Corps in Iran. Now, if you read that carefully, that was restating what Iran's position has been for much of this war, which is they say the strait is open as long as vessels coordinate with us and use the route that we mandate, and so on and so forth, and in some cases pay a toll to use the strait. In practice, what that means is it's not open. It's only open to a limited number of vessels. And he was restating that. But I think Donald Trump and other people in Americ, oil traders, all of whom were desperate to see the strait fully reopened, saw that tweet as something more than it was. And so we saw oil prices plunge towards the end of last week. Brent crude dropped down to about $85 a barrel. Everyone was very excited. Then the pushback started in Iran. The Revolutionary Guard said, no, the strait is not open except for vessels that we approve. And there were cases over the weekend where ships tried to get out of the Gulf through the strait and the Iranians fired on them for doing that. And then we had the Americans do the same thing. So in pract, right now, the strait is not open to anyone except the very, very small number of vessels that can coordinate with the Iranians. And pay the Iranians to exit.

[Jason Palmer]

And how has Iran responded to the boarding of this ship?

[Greg Karlstrom]

There's been a lot of tough talk, as you would expect, about how there's going to be retaliation. There were claims in state backed media in Iran they had fired drones at American military vessels, but there's no proof that that actually happened. And there's no evidence of any damage to American warships in the region. I think there are three things that the Iranians could do in response. One is they really could attack American warships. The risk is if they do that, the ceasefire is over. I think at that point, Donald Trump is going to resume attacks. Second option would be attacks on commercial vessels in the Gulf. Not even vessels transiting through the strait, but vessels that are at anchor in the Gulf or in ports in the Gulf. And we've seen the Iranians do that throughout the war. They've fired drones at ships at port in Dubai and elsewhere. I'm not sure what purpose that serves because they've already deterred commercial shipping from using the strait. So carrying out further attacks, it doesn't have any more deterrent value. But it ticks the we retaliated box for the Iranians domestically. And then the third thing they could do is they could do nothing. And they could just accept that there's this mutual blockade now on both sides. And both sides fired on commercial ships over the weekend and the only way this is going to get resolved is in negotiations. And so they could just try to secure a deal that ends this mutual blockade of the straits.

[Jason Palmer]

But the prospects for those negotiations are definitively worse than they were before.

[Greg Karlstrom]

They are partly because of the blockades. So the Americans are saying there will be talks on Tuesday in Islamabad. And JD Vance, the Vice President, is going to head another delegation to meet with Iran and discuss a deal. And they're actively making preparations for that. There were C17 cargo planes over the weekend that landed in Pakistan that were thought to be carrying Vance's motorcade and other equipment and personnel for an American visit. So they seem ready to talk, the Iranians, depending on who you ask, there might be talks, there might not be talks. There were some very strong messages that came out in Iranian media after this American attack on the tanker in the strait, saying that so long as the American blockade is still in place, we're not going to Pakistan. Now, if you think back to the last round of negotiations, we heard the same thing from Iran in the run up to it. They said, we won't meet with America unless the ceasefire is expanded to include Lebanon, we. We won't meet with America unless it agrees to unlock billions of dollars in our money that is frozen by sanctions and banks overseas. They insisted that those were preconditions for negotiating. America didn't meet those preconditions, and the Iranians showed up anyway. So perhaps, again, this is just brinkmanship from Iran. They're trying to extract whatever concessions they can before the talks even take place. Or perhaps they're serious. We don't know yet which it is.

[Jason Palmer]

But if there was willingness by Iran to join those talks, things were kind of on an even keel. There were some positive sign. Why do you suppose, going to this level of aggression on the part of

[Greg Karlstrom]

America, there's a real difference in how it's perceived on both sides? Right. For Iran, it's exactly the way you're describing it. They think we were willing to meet again. We showed some willingness to make concessions around our nuclear program and other things in the previous round of talks. Why are the Americans escalating like this? This is proof that we can't trust them. Whereas I think from the American side, there was a belief that to enter these talks in the first place, that Iran had committed to reopen the Strait of Hormuz that was supposedly in their ceasefire agreement. That hasn't happened. So the Iranians did not deliver on that promise. And so they think this blockade of the Strait, it's not escalation on America's part, it's sort of evening things out. Iran is still imposing its own blockade, so America is now just doing the same thing on its own side. And I'm sure for the Trump administration, the belief is this gives us more leverage now going into these talks, because we have shown that it's not just a rhetorical blockade of the Strait, that we are willing to actually physically enforce it. And so that gives us a point of leverage to get the Iranians to lift their own blockade.

[Jason Palmer]

I'm familiar with the Trump administration's need to sound tough, do tough things, and so on. But as of Friday, as you say, there was a great deal of hope. The markets had bounded back, oil was down. Why put that at risk, if indeed the markets are one of the only things that clearly drive Donald Trump's behavior.

[Greg Karlstrom]

They clearly drive his behavior, but it's hard to understand what drives their behavior at this point. I mean, the idea that oil dropped as low as it did on Friday on the basis of a single tweet from the Iranian foreign minister, who is by no means the most influential person in Iran, seemed a bit irrationally. Optimistic. And sure enough, when trading reopened in Asia on Monday morning, we've already seen Brent jump by about $10 a barrel. So that exuberance is already fading. I mean, I think there's still this belief in the markets that Trump can bend reality to his will by saying things or by tweeting things. And apparently that was extended to Abbas Aragchi as well last week. But it's simply not the case. The only way you really get a durable solution for the markets is by ending the war is by getting to some sort of agreement that reopens the Strait of Hormuz and that reassures shippers and oil companies and other firms that the war isn't going to restart, that they can send their tankers into the Gulf, they can fix the infrastructure that was damaged during this war, and there's not going to be a risk of renewed conflict.

[Jason Palmer]

But that looks like an enormous ask at this point. We don't even know if those talks are going to happen tomorrow.

[Greg Karlstrom]

We don't know if they're going to happen. And then even if they do, despite some willingness on both sides to make concessions, there is just still a huge gap between what they are asking for. Okay, the Americans have walked away from this demand that Iran never be allowed to enrich uranium, which was a non starter in previous rounds of talks. But what they are asking for, a prolonged moratorium on enrichment, is still more than the Iranians are willing to give. And these are just the first issues. Even if you can reach an agreement on those, you have so many other detailed points that need to be negotiated to make this into a proper arms control agreement. So the talks may not happen. And even if they do, there's no guarantee that they're going to be able to bridge these enormous gaps.

[Jason Palmer]

Thanks very much for joining us, Greg.

[Greg Karlstrom]

Thank you, Jason.

[Sarah Larniuk]

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[Sarah Larniuk]

Four years into Russia's war in Ukraine, there is an ominous topic that is often overlooked. In the country's north lies Chernobyl, the site of the worst nuclear accident in human history.

[Jason Palmer]

Sarah Larniuk is deputy editor of the

[Sarah Larniuk]

Intelligence and despite the fact that none of the four reactors on site are currently in use, Chernobyl still request requires careful management, but is constantly caught in the middle of fighting. I took a tour of the Chernobyl site this winter and had a chance to see what that actually looks like up close. This involved passing through umpteenth security gates and following so many security precautions that the team there on site follow every single day.

[Rosie Blore]

4, 3, 2, 1. Thank you very much.

[Sarah Larniuk]

Welcome.

[Don Weinland]

No contamination as previous.

[Pavlo Hrentzienko]

Please hold your helmet when you move up or down.

[Sarah Larniuk]

Pavlo Hrentzienko is my tour guide and works for the nuclear power plant. And so this is the old sarcophagus?

[Pavlo Hrentzienko]

Yes. Shelter objects. Old sarcophagus Reactor number four inside destroyed four decades ago.

[Sarah Larniuk]

In the wreckage of that destroyed reactor, four Soviet workers and engineers worked to clean up the site as fast as possible, building a sarcophagus over the reactor. What I was now staring at. In the 90s it became obvious that more work needed to be done to contain the radiation. They designed an additional dome and it would be called the new Safe confinement. Decades and $1.6 billion later, the European bank for Reconstruction and Development, or the ebrd had managed to orchestrate the construction of a massive hangar type style structure. And it was the first of its kind in the world. Funded by 45 nations.

[Pavlo Hrentzienko]

At its full height and full width and full length, 108 meters tall, 250 meters wide and 150 meters long, it

[Sarah Larniuk]

provided a hermetic seal where humidity and temperature around the old sarcophagus could be controlled Mostly to prevent any corrosion.

[Pavlo Hrentzienko]

Designed to last for 100 years to give Ukraine chance to dismantle the number four reactor and make it safe forever.

[Sarah Larniuk]

It was meant to give the world another hundred years to figure out how to manage the site.

[Balthazar Lindauer]

Well, we all heard on February 14th the news that the drone had hit the new safe confinement. From the very first day, it was not easy to determine to what extent the facility was damaged and how difficult it would be to repair it.

[Sarah Larniuk]

On multiple occasions, missile and drone strikes have caused issues at Chernobyl, including forcing the plant onto backup power. But on February 14, 2025, a Russian drone directly struck the new safe confinement, piercing a hole through the protective dome. Balthazar Lindauer is the director of the EBRD's Nuclear Safety Program.

[Balthazar Lindauer]

The damage is very, very significant, will be very difficult to repair, and currently the new safe confinement doesn't fulfill its functions. So it is currently a useless building.

[Rosie Blore]

Almost.

[Sarah Larniuk]

Understanding what happened when the drone struck the new safe confinement and seeing it with my own eyes, those were two different things. Pavlo took me inside to see exactly what the damage had looked like.

[Pavlo Hrentzienko]

Okay, you can see on the top. Yes. This is maintenance garage for main crane system.

[Sarah Larniuk]

He points to bright yellow steel beams that run across the roof.

[Pavlo Hrentzienko]

The drone hit from the top of this garage. So this garage, it was like an obstacle. Drone could attack another place of the roof. It can affect, for example, the old shelter object.

[Sarah Larniuk]

The old shelter object, also known as the sarcophagus, built in 1986, and beneath it, reactor four. And if the drone had struck there, no one actually knows what would have come next.

[Pavlo Hrentzienko]

And we even don't know what could be the results. This garage saved shelter objects.

[Sarah Larniuk]

Meanwhile, in the control room, they have pictures posted all over the walls of what the destruction looked like. Flames and smoke coming from the hole. The Ukrainian shift supervisor at the time explained that in the first two hours, the open and visible flames were extinguished. But the fire that caught between the internal and external layers of the new safe confinement cladding in there, it burned for weeks.

[Pavlo Hrentzienko]

We have, like, a short movie. It is illustrating how fire spread.

[Sarah Larniuk]

Yes, please, can I watch? Can I film it? In the end, some 300 small holes needed to be cut into the new safe confinement cladding to try and extinguish the embers. The video shows that the internal membrane of the new safe confinement was completely gutted. So all the red scene is where smoldering. This smoldering happened. Half of it. What, like, half of it? Yeah. And they had to, like, find there were different parts of confinement where the fire would start because of this smoldering happening everywhere. So in the time since a temporary repair has been made. But that doesn't address the issue that the hermetic seal has been lost. And so engineers at the construction companies that originally built the new safe confinement have been working on proposed plans for how this could be fixed in the long term. Two options were considered. One in which they fixed the building where it stands. The other they removed the largest movable land based structure in the world and fix it off site.

[Balthazar Lindauer]

One of the key question is can we design repairs which will not require too many people to spend too much time in areas that are affected by high radiation. So that's one of the key questions we have.

[Sarah Larniuk]

They have made the decision now to fix the new safe confinement where it stands. And while the staff working there will have to operate in a high radiation exposure environment, the EBRD decided that leaving the old sarcophagus unprotected for any length of time was just too dangerous.

[Balthazar Lindauer]

And it will be very expensive and there's no two ways about it.

[Sarah Larniuk]

The estimated price tag for the repairs is 500 million euros, a figure that is only likely to balloon further. The clock is ticking here. A few years without humidity and temperature control exposed the old sarcophagus to greater threats of corrosion and irreparable damage. The International Atomic Energy Agency Director General, Raffaele Mariano Grossi put it to me in stark terms.

[Pavlo Hrentzienko]

So far there has been no radioactive release, but the risk will only grow

[Greg Karlstrom]

without repairs because the whole shelter object is unstable and the new building is unable to confine a release.

[Sarah Larniuk]

But asking the international community to send more money to Ukraine at present is a hard sell.

[Jason Palmer]

This Sunday will mark the 40th anniversary of the 1986 Chernobyl nuclear accident. The Economist will have much more coverage throughout the week leading up to it. Looking at the lessons learned from this site that has inspired a multi generational case of the heebie jeebies. Right now you can find on our website and app a digital interactive version of Sarah's story. On Wednesday I'll be on Babbage, our sister show on science and technology, to talk about Chernobyl as a one of a kind laboratory, looking through the urgent research that's even now still being done. And on Friday, a special episode of the Intelligence we'll actually go inside the Chernobyl plant, recounting the history of the accident and considering the legacy that it's left.

[Don Weinland]

So when I got off the train in this little city called Han Tran, I was really surprised because it felt like I was stepping out into the countryside.

[Rosie Blore]

Don Weinland is our China Business editor.

[Don Weinland]

Technically speaking, Hanchuan is a city, but when you're in the downtown area, if you can really call it that, it's very quiet. And I was surprised to see this because I was actually going here to eat McDonald's and I was surprised how far down market these global fast food chains had gone. McDonald's was really buzzing. It seemed like something that people were coming out of the fields for. Places like Hanchuan are really becoming the front line of fast food.

[Jason Palmer]

Global.

[Rosie Blore]

Don, thank you for your epic mission to eat a burger. Western chains have been in China for decades. So what's behind this new strategy? Where are they really going?

[Don Weinland]

That's right, they've been in China for many, many years. Most of these fast food chains now, and I can give you a long list of names. McDonald's, KFC, Burger King, Domino's, Pizza Hut, Starbucks and Subway, they're all here and they're all expanding quite rapidly. Big cities have tons of these already. When you're in a place like Shanghai, where I live, or Beijing, sometimes you can see two McDonald's when you're standing on the road. 70% of KFCs in China are within 10 minutes bicycle ride of another KFC. It's about 60% for McDonald's. So the big cities are very saturated and that is what, what is driving these companies out of the big cities to places that don't really have a whole lot of competition.

[Rosie Blore]

Don, last year you and I recorded an episode of Drum Tower, our China podcast about the rise of domestic fast food. Chinese chains. What's happened to them?

[Don Weinland]

Yeah, they're still around and they are expanding as well. So there are a lot of Chinese fast food names that are popping up in big cities, which are. What's really interesting is that the Chinese ones tested their chops in smaller cities and are now trying to get market share in the bigger cities. Global fast food is moving in the other direction. So they've started in the biggest cities and are moving into smaller towns.

[Rosie Blore]

At the time that we spoke, we thought that McDonald's might even retreat a bit from China. So what's changed?

[Don Weinland]

One thing that has happened over the past decade for global fast food is that they now have very big Chinese investors. And you see this almost across the board now. So for example, McDonald's is owned mainly by CITIC Capital. This is a very powerful state backed company, Yum China, which owns KFC and Pizza Hut has capital from local investors. And you really see most of these global names which represent Western culture, they are owned by local investors. And one thing that's changed recently is that these local investors are willing to put up the capital that is needed to go into these smaller markets, these smaller towns like Hanchuan. Without backing of the local investors, I don't think the global fast food chains would really be trying to do this. It's a very risky bet. But the local investors here are giving it a shot.

[Rosie Blore]

And what are their chances of success? Do you think rural Chinese are really hungry for Western brand fast food?

[Don Weinland]

It's a really important question for all these companies. Do Chinese farmers want to eat McDonald's and drink Starbucks? We're going to find out over the next couple years. I see a number of problems when I go into these places in Han Tran. McDonald's chose this place because it had a newly opened Western style mall. A lot of places don't have this type of real estate that can host a restaurant like this. There's a lot of other challenges as well. So you know, you mentioned the Chinese brands. They are present in most of these small cities. They sell at a much cheaper price. They're much more attuned to the local market, and they're going to give McDonald's and KFC a lot of competition in these places. Another problem, supply chains. It's hard to build reliable supply chains in small cities across rural China. One reason though for optimism is that there is a lot of fascination in these types of Western fast food chains when they open up in rural towns. So people are really interested in trying Starbucks. They appear to be interested in burgers. If the Western chains can keep up that level of enthusiasm, then I think they might have a chance.

[Rosie Blore]

Don, thank you very much for talking to me.

[Don Weinland]

Thank you.

[Rosie Blore]

And if you want to listen to the discussion that Don and I had about fast food in China on Drum Tower, our China podcast, the link is in the show Notes.

[Jason Palmer]

That's all for this episode of the Intelligence. We'll see you back here tomorrow.

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