← Sharp China with Bill Bishop
Sharp China with Bill Bishop
All Eyes on Iran; Two Sessions Questions; Alibaba, DeepSeek and Distillation; Another UK Spying Scandal
00:56:28
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- [00:00]
A
Foreign.
- [00:06]
B
Welcome back to another episode of Sharp China. I'm Andrew Sharp and on the other line, Bill Bishop. Bill, it's great to see you. How you doing?
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A
Hey, Andrew, it's great to be back. Hi, everybody. Happy year of the Horse. I think we last recorded before New Year's, right?
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B
Indeed. Mid February, and it was a mostly quiet two weeks and then it wasn't quiet whatsoever ever over the last week or so.
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A
I got quiet is not how I would describe things. Indeed.
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B
So we've got a lot to wrap our arms around on the episode today. We've got two sessions getting underway as we speak. We've got another UK spying scandal at the end, some AI news. But first and foremost, we will begin with the biggest story in the world this week. A war is unfolding in Iran and being prosecuted by the United States and Israel. I've prepped some questions that we can walk through as far as how all of this may or may not impact China. But as a threshold matter, on Monday you wrote, at this point, it is too early to tell what this means for China. So apologies that I do not have any hot takes. I really identify with that sentiment when I read it on Monday night because I feel like I'm going a little crazy here. There are a lot of people making strident claims about what all this means, how it should be understood. So is that still where you are? Too early to tell what precisely this would mean?
- [01:39]
A
I think it's coming into more focus. Some of the, you know, the positive and the negative ramifications for China. I will. My one hot take will be that this is not part of some grand strategy around China. Right. I mean, there's a lot of this sort of post facto justification that somehow this is part of this grand strategic plan for the Trump administration, because it's really all about China, which is completely ahistorical, completely ignores the realities of the Middle east and the Israel, what Israel's been doing the last two years, the US relationship with Iran. But also, did you not, did people who say that not read the national defense strategy or not listen to Bridge Colby, who've been all about, and the whole MAGA movement, which is all about get out of these endless wars in the Middle East.
- [02:22]
B
Yeah.
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A
But people, you know, again, there's a, there's an industry of trying to, you know, ascribe more of a sort of strategic foresight to what's coming out of the White House. And again, I think talking. Anyone who sort of has an understanding of how the process is working in the Current administration. It's not a grand strategy.
- [02:41]
B
Yeah. I mean, I would say what I have come to understand is that the administration never does anything for just one reason. And some of the reactions in the immediate aftermath of the. Of the beginning of the war, where this is all about China or what the US is doing in Iran, is all about China. And that is a crazy way to frame what's been.
- [03:06]
A
But it has. It absolutely has ramifications for China and again, some, indeed.
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B
That's why it's more nuanced than sort of yes or no. I do think the impact on China and the potential benefits to a regime change or a friendlier version of the existing regime in Iran would have benefits and serve American interests related to China. And that probably weighed on the calculus, but was not a dispositive factor in deciding to do any of this.
- [03:37]
A
But I think, you know, again, there's positive and negative ramifications for China. On the. On the negative side, again, they potentially lost a friendly regime in the Middle East. They obviously are having issues around energy supplies and for. And things like inputs for fertilizers, a lot of which comes from the Gulf, I think something that, you know, China's been buying a lot of Iran's oil at a big discount, but it only accounts for. I think it was. 90% of Iran's oil is sold to Chinese firms, but only. It only accounts for 12% of PRC imports. Still. Still, you know, not. Not nothing. But given, you know, the way the Chinese have been stockpiling, given the way they've been trying to, you know, they've been, I think, successfully changing their energy mix, it's not existential for them. Mm. Certainly if the US ends up getting bogged down and yet another Middle east quagmire, you know, where the focus is on the Middle east, both in terms of policymaker bandwidth, but also munitions, U.S. military, that will end up being quite positive for China.
- [04:37]
B
Well, that was one of the questions I had. Do you think the PRC wants this war to drag on for months or. And quickly, given the implications here?
- [04:46]
A
I don't know the answer to that. And I think it probably depends on who you ask. I think if. If the US can either on its own with the Navy or with other other navies, keep the, you know, keep the straight Hormuz open so the energy flows then. But is otherwise keep the war going.
- [05:05]
B
Sure.
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A
Then that's probably on net. China can deal with that. I think, you know, one of the complications for China is that the. It isn't just Israel and The US Versus Iran now because of the way the Iranians have lashed out at every other country, you know, in the region, basically. And so now, you know, China, you know, has to be careful because they also have good relations with those other countries, and those countries are under attack, too. And so, you know, right now you've got, you know, you've got sort of rhetorical combination of the killing of the Iranian leader. You. Lots of expressions of concern in the readouts of the calls that the foreign minister, Wang Yi has had with, I think he spoke with the Iranian foreign minister, Israeli foreign minister, the Russian foreign minister, the Omani foreign minister, and the French foreign minister so far. Maybe, maybe the others. I'm a little bit behind this morning. But it's all rhetorical. I think, though the reality is, of course, there's also been this, oh, well, this is just a sign of having a partnership with China is worthless because they'll never come to your. Your aid.
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B
Yeah.
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A
I mean, but the reality is no one should have expected China to suddenly step up with sort of military support, you know, you know, somehow try and intervene. That's not what China does. It's also not what they can't do. They don't have the capability now. It doesn't mean they may not in the future. You know, they're building, I think they have eight or nine aircraft carriers is their goal. You don't need that many aircraft carriers for Taiwan or the South China Sea. Yeah, but they still do not have the ability to project military power globally like the US does.
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B
Right. Well, and in terms of even the rhetorical support that they have offered or the rhetorical reactions over the last several days, I mean, there's no way to quantify this, but to my amateur China watching eyes, the rhetoric in response to this action has actually been fairly measured on the PRC side. Like, there have been stock condemnations, but it feels like we're at a 2 out of 10 on the Japan taka issue scale. Do you agree with that sense in terms of how China's playing this?
- [07:11]
A
I think that's, you know, whether it's two or three or four, it's definitely not anywhere near what it is for the Japan approach. But I think. But again, it's also because they have to be more nuanced because there are other countries they care about that are involved that are on the same side or partially on the same side as the US And Israel. And so it's not.
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B
So they don't, they don't want to alienate Saudi Arabia in the course of all this.
- [07:32]
A
But ultimately, I mean, ultimately, I think what they, you know, they need, they want to make sure that the energy and things like fertilizer inputs are able to flow. And that is still a challenge. You know, that's why, you know, President Trump yesterday posted a true social. I think he said they were going to use the US's developed development finance Corporation to guarantee shipping and basically become the insurer for shipping and then use the US Navy to guarantee security. And you know, my suggestion, the newsletter yesterday. Well, why not? You know, if that's really happening when Trump and Xi meet, why doesn't Trump propose that the PLA send their navy? You know, they haven't. They know that they regularly do anti piracy operations off Somalia and the Red Sea.
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B
Yeah.
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A
Why don't they see if they can enlist the PLA Navy to help out with escorting maritime traffic through the Strait of Hormuz so it can go, can, can be safe, can't hurt, win, win again. The US could ask that and it would probably have to be a multilateral force. And if the Chinese say no, that would. That's interesting.
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B
Well, as we bounce around here, if the US Navy protects Gulf shipping and China's imports of oil fertilizer, is that good or bad for Beijing in the short and medium term here?
- [08:44]
A
Well, I think for their economy, it's good. I don't know that. I mean, I think this last week has also, though, I think just been a reminder of, you know, there have been this, the dollar has been depreciating, their MBA has been appreciating the last few months. And then suddenly, though, when this war broke out, you know, there was a huge spike in the dollar. You don't see a flight to the Renminbi when there's kind of global uncertainty or global panic. Right. Again, we're still back to a flight to the dollar. Now, whether or not that holds remains to be seen, but it is a reminder, I think, for, you know, maybe Beijing officials there don't want to be in the place where all of a sudden there's a flight to Chinese assets when there's global uncertainty. But it is still a reminder that that is they're not at the same level as the US in terms of that. The level of the power and the influence in the global system.
- [09:27]
B
Yeah, I mean, I think there's been some clarifying lessons over the last week or two in terms of how far along we are as far as multipolarity is concerned. And I ask about the shipping protection that the US is Offering mainly because I saw a number of people on Tuesday reacting to Trump's announcement saying, well, great, now US Tax dollars are being spent on shipments of Chinese oil. And it's like, well, if the PRC is suddenly dependent on the US for safe passage of critical industrial inputs, that's not the worst use of tax dollars I can imagine. And I can imagine a lot of different scenarios where that's actually pretty advantageous. But we'll see, you know, we'll see.
- [10:12]
A
We'll see what the rates that the, that the FC charges. But then also, again, if, if, you know, Trump's post said all nations, I think, or didn't, didn't specify, you know, exceptions for certain countries. You know, maybe they can also say, well, yeah, gee, the ships that are either Chinese flagged or ships that are sending stuff to China, okay, well, the insurance fees will be charged in rare earth.
- [10:34]
B
Right, Exactly. That's what I mean. It's sort of a mutual point of leverage.
- [10:38]
A
It's pretty beneficial. Right. It's something to bring to the table when Xi and Trump meet at the end of this month. And, you know, the other thing that I thought was kind of nutty around this, you know, the U.S. the U.S. israeli attack was this idea that somehow the Chinese would then cancel or postpone Trump's visit at the end of the month, which, again, I think is just a misreading of how the Chinese view the relationship where it is, and the desire for some level of, whether it's short term, but some level of stability in the relationship. And they've worked very hard, I think very successfully over the last year to get the Trump administration to a point where they have found a floor. And so for them to just say, and I've sort of fit a peak, oh, we're going to blow up the visitors, I think that would end up unleashing a whole set of other forces in the US that would drive the relationship down to a lower level.
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B
Right. And if you're the PRC side at this point, you still want a deal and you still want more stability than there's been over the last couple of years here.
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A
But, you know, but going back to what does this mean for China? I mean, you think about it from the Chinese perspective, I mean, there's a joke going around as sort of like, take a sort of a Good Fellows or a Sopranos approach to this. I mean, Trump will be showing up in Beijing having taken out Maduro and Khomeini. Right. He doesn't need to say anything. It's not a threat. To China. But it is a demonstration, I think, of sort of not only American power, but also what President Trump is willing to do. And I think that message won't be lost on Xi in terms of, okay, this is somebody who isn't, you know, it's capable of things that are outside the, outside of the norm of what we're used to in exercise of, of power.
- [12:21]
B
Yeah. And that is an advantage as he sits down with Xi. And I mean, in terms of what's at stake for China, just for people who are less familiar with it, we've talked about it in the past, the Iran PRC partnership. But what sort of interests animated this relationship in the past?
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A
I mean, it was, you know, a lot. Economic interest, energy, of course, Iran became a member of the Shanghai Cooperation Organization. I think it was a member of the bri. I think it was in brics, I have to make sure. And so. But it was also, it was, it was, again, it was a, it was a, you know, a bulwark against America in some ways in the Middle East. And it was also, because it was a such a heavily sanctioned regime, you know, China had a lot of leverage
- [13:07]
B
with it, too, but China. Right. Selling 90% of their oil and so
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A
at a, at a, at a big discount to China, you know, but China also, you know, they, they have relationships throughout the Gulf. They, you know, they obviously had to maneuver between the, you know, these different countries. They tried to broker some, they, they did broker a sort of a rapprochement between Saudi Arabia and Iran or, or they came in at near the end to help sort of push it over the finish line. Now Iran is attack Saudi Arabia, too. I mean, it's, it's, hasn't, you know, hasn't really worked out, I think, in the way that the Chinese thought it would in terms of having the ability to reshape the Middle East.
- [13:44]
B
Right. And so China is just reacting along with the rest of the world here. I mean, my understanding is that they were shipping weapons to Iran as well, and they were helping the regime sort of destabilize the region generally and occupy U.S. resources. And they were deeply integrated in the Iranian tech stack and the surveillance state that was overseen by the irgc.
- [14:10]
A
I was curious if they're. All the traffic cameras in Iran are actually Tehran or from a Chinese firm, because according to Israel Financial Times, Israel has hacked them for years. And so that was incredible. And useful.
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B
Yeah.
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A
Useful for any other city you're interested in that has Chinese cameras, if those are Chinese cameras.
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B
Indeed. Well, and it is, I Mean, I think people can overstate the significance of how hollow the alliance now looks after the last week or so. And so I don't want to overstate the meaning of this, but like for several years, China, Russia and Iran have been seen as sort of an anti US Axis. And I think it should be clarifying to the rest of the world as far as what China's strategic partnerships actually entail, that they have no card to play here and they are watching and not even really issuing strongly worded statements in response to all of this. And it's also an interesting window into how China views itself as a superpower. Like, they want the benefits of global power. They want energy access, trade routes, influence, they want to host the rapprochement with Saudi Arabia and Iran. They are, however, unwilling to assume any of the risks or sacrifices associated with like real global leadership.
- [15:35]
A
I mean, it's unwillingness. It's also, it's also that I think it's also a capabilities issue. And yeah, maybe not there yet, know, and those kinds of, you know, your, your actions, your behaviors change as your capabilities change.
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B
Yeah, that's fair.
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A
And there's also stuff online about, oh, you know, this is another sign that the Chinese military equipment doesn't work, you know, because the radars didn't work. It is not at all clear what actually Chinese kit the Iranians were using. Just like with the Venezuelans, you know, the Chinese radar they had was older versions and it was, I think there were reports that some of it wasn't even turned on. So, you know, it's a little too early to sort of draw these conclusions.
- [16:12]
B
So related to that question, in terms of drawing conclusions, does this war have any bearing on the PRC's calculus around Taiwan?
- [16:22]
A
That is, you know, that's the other hot take. And I think again, I, this goes, you look at it a couple of ways, I think you could say, oh, well, the US is distracted and the US is burning down munitions and they can't, they can't sustain, you know, like they couldn't possibly. They can, you know, over the next month we'll see how much the US can sustain in the ran operations. Therefore, they can't even possibly sustain anything over Taiwan. So it opens, sort of gives the PRC more potential freedom for action is one argument.
- [16:57]
B
You could also say, look, the time to take Taiwan is now, in the next two months. But then you could also turn around and say, well, they're firing generals every week right now. Right.
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A
And what I was going to say is the flip side. Right. And this Goes back to the earlier point is, well, okay, you know, Trump has said repeatedly, you know, she wouldn't dare to do something on Taiwan while I'm in power. Right. And you know, if that's true. But again, the US Is also that idea. Yeah, the idea, you know, the US is, you know, this administration is much more aggressive in the use of force overseas. Right. And so that will raise questions, I think, I would guess. And also to your point, I mean, again, is this, is the PLA ready if they, if she said this is a great opportunity, let's go do something, are they actually ready?
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B
Yeah, I think the goal is to be ready in the next couple years.
- [17:49]
A
Well, the goal, the goal is to be ready like 2027. It wasn't specifically to invade Taiwan, but it's to have a force that is capable of doing things like.
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B
Right.
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A
And readiness Taiwan.
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B
And I don't know if readiness is where they are right now, given some of the upheaval.
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A
My answer, sorry, is unsatisfactory. Is. I hope not. I don't know.
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B
Yeah, fair enough. Right. Well, and as far as US Strategy in the course of all this and potential benefits to the US Side, again, I agree with where you were at the very beginning of the episode. Like the initial rush of takes. This is all about China. I found those to be pretty overrated in large part, again, because anybody who's studying the Trump administration like there's never one goal for tariffs. Those accomplish multiple goals for the.
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A
But Iran, Iran is also very specific. You know, there's, of course, there's 50 years of history Israel, you know, there's what Israel has done over the last two plus years where they've, you know, they destroyed the Iranian proxy network.
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B
So that totally there's more opportunity than there has.
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A
Iran is at its weakest it's been in decades. And you know, this is, they are the existential enemy of Israel. You've also got, I mean, today there was reports that the bombing, I don't know if it was US or Israeli bombs killed head of intelligence who was behind one of the plots to assassinate President Trump. So it's personal.
- [19:11]
B
Missed that.
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A
You know, I don't know if people noticed there was one. I think a couple days ago, President Trump posted this video of a B2, you know, AI generated B2 bombing and the, and the soundtrack was bomber and bomb, bomb, bomb, bomb, bomb. So I'm old enough to remember, you know, I was in elementary school when the Shah fell and the Iranians took the US hostages for 400 something days in Tehran. And back then, you know, there was the Beach Boys, had the song Barbara Ann. And then someone, I forget who, I think in 1980 put it together, you know, changed it to a very catchy tune called Bomb, Bomb Bomber N. Oh, wow.
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B
I thought that was an AI invention.
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A
No, no, no. It was a whole thing. Is, is, is a whole, it was a whole thing in the like 80 and into the beginning of the Reagan administration. 81. Of course, you know, the Iranians released the hostages like inauguration day or day after. I get the exact when Reagan came in. So you also think from President Trump's perspective, I mean, he was, you know, as an American and he was, he was, however old he was, he was, must have been in his 30s, you know, formative.
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B
Sure.
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A
This is, this is sort of Iran, US Conflict has been, you know, this, this enmity has been going on for decades.
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B
Right.
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A
So it's much deeper than like, oh, let's do something to, on Iran because strategically help us with China. That, that is just like, that is not how this is thought through.
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B
And not only that, Iran has continued to be a problem for decades, including a couple years ago in the Red Sea with the Houthi rebels shutting down shipping lanes. Like this has been occupying US Attention, dollars and lives for a really long time.
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A
And they, you know, they just killed tens of thousands of their own citizens who are protesting after Trump, you know, Trump sort of encouraged them to go out and protest.
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B
Yeah.
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A
Then war on the Iranian regime and they effectively ignored him. You know, back to, so what is China?
- [21:01]
B
Well, hold on, let me, let me just add that along those lines, I, in terms of Bridge Colby and allocating resources to Asia and whatnot, I do think the impact on China was weighed by the administration. And the impact on China is potentially pretty negative. Negative depending on how the war continues to play out here. Like what we've seen over the last year or so is the US Is stripping China of leverage to divert US attention, whether it's in Venezuela or now in Iran and the Middle east in the event of an invasion of Taiwan. And the US is also acquiring leverage of its own in that scenario.
- [21:42]
A
But I mean, I disagree on Iran just because I look at our history of interventions in the Middle east, it never goes well.
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B
Right, but don't you think the administration is aware of that history? I mean, they're not. I would be shocked if it turns into a years long occupation at the end of this.
- [22:01]
A
Let's hope not. But you know, I mean, we can all knock on, you know, the reports that you Know, the, the CIA is working with the Kurds to effectively, you know, so like fomen almost, you know, it's almost like a civil. I mean this is, this could go really badly.
- [22:16]
B
Right.
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A
Be it just another like Libya on a much worse scale.
- [22:19]
B
Which is why, by the way, I'm reluctant to weigh in with any sort of definitive takes at this point.
- [22:25]
A
Pretty, at least from the president's statements it's pretty clear that there is no like day after plan. Oh, I killed. The people we thought we could work with are dead. I'm creating, you know, I'm creating jobs in Iran. I don't know who we're going to do. I mean it's like, well, he's also
- [22:39]
B
calling a new reporter every hour and giving a different answer as to what the plan is. Not that he's under any obligation to fully disclose the plan but you know, it's not terribly.
- [22:51]
A
No, it's not. I mean it's not, it's not funny. It's actually, I mean there, there is a look, I think the Chinese would be, you know, they're. One of the, one of the arguments too about why it's bad for China is oh, you know, it'll become, they'll get rid of the theocratic regime. It'll somehow become some sort of a liberal, more sort of Western leaning Democratic ish regime. That seems unlikely anytime soon. Unfortunately.
- [23:16]
B
I think a key lesson among the current administration is that that's where prior adventures in the Middle east have aired, is trying to socially engineer some perfect democratic outcome. I don't think that's the goal.
- [23:31]
A
Right.
- [23:31]
B
The current administration.
- [23:32]
A
So now we're just gonna, gonna sort of. It's not social engineering, it's like bombing engineering.
- [23:37]
B
Until we, until there's a leadership structure that is friendly to US interests I would guess is the goal.
- [23:45]
A
And so, you know, a long term, you know, failed Iran as a failed state is. I think you can argue, yes, that might help China in the sense that it keeps the US distracted both in terms of policymaker bandwidth as well as, you know, US military assets as well as. It just further pushes the, that China. One of their key sort of foreign policy planks or arguments is the US Is this greatest source of instability in the world. China's. They're very much about. China is the stable partner. China is the source of predictability and stability. That would be on the positive side of the ledger for China. The flip side is then. But if that means that the Iranian energy industry is a disaster, they're not selling oil or they're still able to.
- [24:34]
B
Or if the US Is disrupt shipping. Yeah. US has influence over the Strait of Hormuz indefinitely. That's a problem for China.
- [24:42]
A
But the US and all the other countries, you know, the other countries there are not going to sign up on. We're not going to sell energy to China. I mean, that's not, that is not. No, that is not realistic. Just like we're already. Venezuela is already selling oil again, to China. Right. I mean, it's a, It's a global market.
- [24:58]
B
But I think where that is important leverage is in the event that China decides to go to war with Taiwan or invade Taiwan and go to war with Taiwan, the U.S. japan and whoever else, the ability to turn off shipments of oil in that scenario is actually a very valuable point of leverage.
- [25:19]
A
Right. If they're turning off not just the exports from Iran, but the entire Gulf region. But I just. Yeah, again, that would require the U.S. i think, actually then being on in an adversarial position with Saudi Arabia, Qatar, other, you know, other countries in the Gulf, not just Iran, which I don't think is feasible.
- [25:39]
B
Yeah. I mean, Saudi Arabia, I think their top customer is China as well.
- [25:43]
A
So bigger than Iran, I mean. And, you know, and China is also, you know, massively increasing their reserves. They're also, again, changing their energy mix to be less reliant.
- [25:55]
B
And Russia is still sitting right there.
- [25:56]
A
And they also have Russia. And Russia is, you know, again, a. Another desperate seller.
- [26:02]
B
Yeah, well, we will see what emerges in the weeks to come because there's still plenty of time for this to turn into an absolute catastrophe for the United States.
- [26:12]
A
I mean, again, this is. We're a China, you know, we're talking about China. But as an American, I mean, this is. I can understand why so much of the mega world is upset because this is not what was promised. This is not, you know, this. But also, I mean, again, you know, you wake up and we're in another Middle east war. Sorry for my language, but I mean, you're having, you know, look at what we did in Iraq in 2003, and really, is it. And I hope, I hope it turns out better, and I hope it turns out better for the Iranian people. But, I mean, this seems kind of nuts, right?
- [26:46]
B
Well, and I would say there was an initial rush of triumphalism in the first day or so. Of course, Kamini died, and now it's like, well, okay, so what's the plan? And why does the story change literally every day as the administration is messaging it? So we'll see.
- [27:07]
A
And again, I'm sure we'll get some hate mail for this, but why would anyone assume there's a coherent plan for this given everything else that we've seen?
- [27:16]
B
It's a fair question.
- [27:17]
A
I mean, no, no, this is the one where we know what we're doing. I mean, come on.
- [27:21]
B
Well, again, though, I think there's more strategy than you give the Trump administration credit for. We shall see. China, China's global interests are in worse shape today than they were 15 months ago when Trump took office.
- [27:35]
A
Potentially. Again, if this turns out in a positive way and it actually turns out that this bombing campaign really does get to the point where there are some sort of coalescing of forces in Iran that say, okay, enough, and we're going to work with the US and we're going to, you know, we're going to give up the nuclear program, we're going to give up the ballistic missiles and, you know, whether it may still be authoritarian and may still have some element of theocratic influence, but they're able, they actually can keep society together, keep the country together, and they're not going to
- [28:11]
B
waging proxy wars with US And US Allies for years on end.
- [28:16]
A
But again, I just don't understand why we would think that would work this time when it hasn't worked in any other country that the US Is, has gotten involved in the Middle east and recent memory.
- [28:25]
B
It's a fair concern and one that I think everybody has harbored for months now as this has become more of a realistic scenario here. One thing before we shift to domestic news. New York Times headline, taiwan Arms sale approved by Congress is delayed as Trump plans visit to Beijing. The Trump administration has delayed announcing a package of arms sales to Taiwan valued at billions of dollars to avoid upsetting Xi Jinping, China's leader, ahead of President Trump's planned trip to Beijing in April. According to US Officials, the weapons sale, which which includes air defense missiles, is in an advanced stage. Senior Republican and Democratic lawmakers approved the package after the State Department sent it to them in January for informal review. So just noting that as a bit of follow up and housekeeping. Follow up to our discussion from before the break, not surprising that the arms package would be paused in advance of the visit.
- [29:25]
A
Right. And so the Financial Times had reported on this. They had it at, I think, almost a $20 billion arms package like a week before. The New York Times, New York Times I think came in at 13. This follows on the $11 billion arms package that was announced in January and December that really did upset Beijing. You know, the Financial Times story had also, I think that the Chinese ambassador had gone to the White House and been very upset because they'd gotten wind of this deal and it threatened, you know, threatened we're going to cancel the visit. Talking to people who've done worked on this stuff before that I, what I've been hearing is, well, actually normally the President wouldn't announce that they would not announce a new arms package. You know, this close to a potential visit, either the Chinese leader coming to the US or the US Leader going to China. That in any scenario, the quote unquote delay is really not that surprising because it is so probably any of these deals are so problematic. And so, and so the question really is, okay, it sounds like this is a real thing that this package has been, you know, is supposed to move forward. Then the question will be, okay, they meet in, you know, Trump goes to Beijing in 31 March. He's there for two or three or four days, I guess in China, after he returns, after he leaves China, is this deal off the table? Is it then announced a few weeks later? Or, you know, then you can start saying, well, was it somehow delayed as, as a concession to the Chinese side?
- [30:51]
B
Okay, fair enough. Yeah. And I think that's ultimately where we landed before the break. But just wanted to note the follow up reporting. We also have dates on the scheduled Visit to Beijing, March 31 to April 2. So we'll see what news emerges in terms of whether he will be there. But I certainly looks like both sides are planning for that trip to actually happen, despite the war. But who knows what the future holds for any of us as all this continues to unfold. For now though, speaking of Beijing, the two sessions gets underway this week, I got a read from Neil Thomas at the center for China Analysis on substack. China's annual two sessions convenes from March 4 to approximately March 11. Thousands of delegates from across the nation will gather in Beijing for one of the most important events of the Chinese political calendar. This year is especially significant because the government will not only announce its annual economic targets, but will also publish the 15th Five Year Plan outlining policy objectives for 2026-2030. So the Chinese People's Political Consultative Conference, the CPP, the CPPCC, a bit of mouthful there that took place Wednesday. National People's Congress begins Thursday, and that will include the unveiling of the 15th Five Year Plan. What are you going to be paying attention to as all of this unfolds over the next week or so.
- [32:27]
A
So I mean of the, of the two meetings, the, the npc, the National People's Congress, that's the one that actually really matters. So some of the things to pay attention to one or you know, the Premier Lee will give his government work report. It'll be a draft, but usually whatever changes the legislature makes are very minor. So you can usually work off the draft. You know, one of the things to look for is okay, what's the, what do they talk about for a growth, a GDP growth target for 2026. And you know, the range is the assumption for last year it was around 5%. There is, you know, some economists, analysts are saying, oh, this year it'll be 4.5 to 5. It'll be a range of 4.5 to 5%. My personal view is it'll still actually probably be around 5%. It doesn't really matter.
- [33:12]
B
Yeah. Why doesn't it matter?
- [33:15]
A
Well, I mean what matters is they set a target that the system needs to have a target and the system, it needs to be above 4% to get to their sort of longer term goals about how they grow the size of the economy, whether it's 4.5 to 5%, around 5%. It's as you would say in Chinese, like it's really about the same. It's maybe tolerating a little bit less growth than they saw last year. But yeah, whatever the numbers, they're going to hit it.
- [33:41]
B
Well, that's my reaction to why.
- [33:43]
A
Unless, unless there's some, some sort of really significant shock like there was in Covid where they really, they did miss the number just because it was such a, you know, and they had a good excuse. Right. Also look for what can you figure out as sort of the growth rate in the play and the defense spending.
- [34:00]
B
Yeah.
- [34:00]
A
Any. Whether or not there are any announcements around or indications of additional personnel changes or shifts and you know, anything around missing politburo members or the PLA stuff. Not sure that'll happen but it's always worth watching. And then there's the 15th Five Year Plan and we got a good, I think the high level outline of that out of the plenum last fall. And then it'll be, but then it'll be fleshed out. I don't think it'll change too much from what we got as sort of the outline, the recommendations that were published. But we're going to have to parse through that and sort of see really get much more granular detail on what that means for the goals for the next Year, five years, both sort of economic as well as social, technological, et cetera. And then the other thing to always watch for is she will attend these breakout sessions where he'll go meet delegation either provincial or also from the plaque. And he'll do that both at the CPPCC as well as at the npc. And then what he says in those meetings, one who is, you know, which delegation does he pick and then what does he say are worth paying a lot of attention to.
- [35:12]
B
Right. In terms of areas that the government wants to emphasize in the years to come.
- [35:17]
A
Right.
- [35:17]
B
Okay.
- [35:18]
A
Right.
- [35:19]
B
In terms of what will actually be in the five year plan, because I recall the plenum we saw areas of emphasis like obviously there's going to be a huge focus on consumer spending again and stimulating the consumer market. Will there be more concrete policy in the five year plan in terms of how they actually are planning to do that?
- [35:43]
A
There may be some fleshing out about how they're thinking about doing it. There's not going to be like we're going to, you know, give, you know, X number of new bonds or any, you know, you're not going to sort of see that kind of numbers. I don't think in the 15, five year plan.
- [35:55]
B
Okay.
- [35:56]
A
You know, more for sort of what it means for the economy for the next year. The more the real focus will be on what's in the government work report which again is also will obviously be very much meshed with what's in the 15 five year plan.
- [36:13]
B
Yeah. Okay. Well we'll have more coverage next week as we have more to talk about on the heels of the two sessions and you'll be covering it on cynicism the rest of this week. So people go to it is so
- [36:26]
A
I mean every year and the thing is, it's hard is, is, is it sort of the first day matters, you know, the government report, the she's meeting, his breakouts matter and then the end potentially matters. Although the premier no longer seems to give press conferences. It's one of those things where everyone, you feel like you have to take it seriously but they're really, it's, it's just not that interesting for a few days.
- [36:53]
B
Yeah, well, and some of the writing in the work report is kind of a slog to make your way through,
- [37:00]
A
but we'll see, I mean this year it'll be interesting to see how, whether or not there's going to be lots of, I think quick analysis analysis of the work report of the 15 Five Year Plan and comparing it to previous ones and it'll probably be come out really quickly because, I mean, I'm curious to see if you stick it in the AI with the right prompt, how good a job it does it do.
- [37:19]
B
There you go.
- [37:20]
A
This is another area where we're all going to be obsoleted, man. Someday it's just going to be you and me and avatars.
- [37:25]
B
The days are not.
- [37:27]
A
I, I just, if I, if I can do it with my avatar as Tashi and you're Ollie and we do the China Dog podcast and you know, might do. You never know.
- [37:36]
B
I don't know. I, I honestly think this all ends with you and I just doing the podcast for a group of people at the dog park with Ollie and Dashi. And other than that, everybody's gonna be out of job, out of a job in the future. But speaking of AI, that was our next agenda item here. A couple different AI stories to mention. Bloomberg, the architect of Alibaba's chief AI model has quit his post. A surprise departure that's rattled the developer community and raised questions about the Chinese online leader's pivot to artificial intelligence. Jin Yong Lin, who also goes by Justin, announced on X he was stepping down as the tech lead for Quinn, Alibaba's main AI platform. So this caused quite a stir, a bit of an exodus from Alibaba's AI team. Did you have any reaction or context for what was going on there?
- [38:30]
A
I mean, Quinn has, you know, just, just released, I think, several very good models. They seem to be really at the forefront of Chinese AI development. And so, no, this was seen as quite shocking.
- [38:42]
B
Alibaba stock took a pretty big hit too.
- [38:44]
A
I mean, it sounds like this is, you know, Alibaba is a big corporation and, you know, further, you know, we don't really know exactly what happened. There's sort of further comments from some of the people involved. It sounds like they, one of the, one of their biggest challenges is again, you know, Alibaba is trying to build a business around AI. And so the corporation, the company as a whole, is using up a lot of their limited computing resources relative to, say, the US Hyperscalers to commercialize AI versus developing these frontier models. And that may have been some of the frustration. I mean, the guys who left, if they were able to, you know, if they were in the us they could leave Quinn running Quinn and go raise, you know, billion 10 figures at, you know, probably a 10 plus figure or valuation. Right. China market's different. I think they're still in China and they're probably, if they could get to Singapore or the US they could probably do it. It's not clear that they will.
- [39:44]
B
Mm, that's interesting. Hard to leave the country if you're John. John Yong Lin.
- [39:50]
A
This is also happening as again, remember where there's all this hype about the next Deep Seq model and it was going to be Chinese, you know, over the. Over the, like the Spring festival, Lunar New Year holiday, Chinese New Year, whatever, you know, whatever. We're not going to get in that whole sort of discussion. But over this period, that is now over.
- [40:08]
B
Not touching that minefield. Sure.
- [40:11]
A
No, it's fascinating model, no sign of the new model. Right. And so the question, you know, again, what happened? You know, I've heard some people said, well, actually it's because they. As they got closer to release, they realized it had some problems and they got to fix it.
- [40:25]
B
What kind of problems did that? Was there any detail there?
- [40:28]
A
No. Others said while they're, you know, they're trying to, you know, make it work on the PRC chips like the Huawei chips or I think it was camera, but that takes longer than expected. You know, the U.S. what's been interesting really has been how the U.S. side has, I think really to avoid another deep seek moment or deep sea shock to the stock market, got much more proactive in terms of trying to deposition the release of the new model you had a couple of weeks ago or so, OpenAI came out with a. They sent a memo to the Hill and then it was leaked about, you know, accusing OpenAI of distillation attacks.
- [41:07]
B
Accusing Deepseek of distillation attacks.
- [41:09]
A
Sorry. Accusing Deep SEQ of distillation attacks. And then a week later or so you had Anthropic do the same thing. Then you had the Reuters story where the information had reported a while I think in December that DeepSeq was actually using Blackwell Nvidia Blackwell chips to train this new model, even though according to export controls are not supposed to have
- [41:28]
B
them, but those are extra banned. Yeah.
- [41:30]
A
Reuters, they can find a way.
- [41:32]
B
Yeah.
- [41:33]
A
But what was interesting about the Reuters report was they were setting a US government official who was saying this. So the US Government, somebody in the US government decided we should leak to get ahead of this to say, you know, and they said, oh, and they're gonna, they're gonna try and make it look like it's not trained on Nvidias. So it's trying to get ahead of the story so that when it came out it wouldn't be this not like Deep Seq moment too that then crashes the Stock market and causes, all the, you know, all the stuff that happened last year when deepsea came out. So that. But here we are, right? All this hype in the FT reporter over the weekend, that Deep Sea was gonna roll out, I think, before the npc. And again, it hasn't happened. At least it hasn't happen. Checked an hour ago. And so it's interesting what's going on. I wish. I wish we knew what was really going on.
- [42:14]
B
Yeah. And I mean, as far as Alibaba is concerned, my one comment I read in one place that they brought in somebody from Google, and that's part of the controversy. And commercializing all this stuff isn't sitting well with some of the researchers there. So it's good to know that Chinese researchers are as precious as our American AI researchers about what they're doing in any of these companies. But the Deep Sea situation, I mean, do you know who Dr. Dre is, Bill?
- [42:46]
A
Dr. Dre? No.
- [42:47]
B
Oh, wow. So Dr. Dre, one of the foremost rap producers.
- [42:54]
A
Oh, yeah, of course. Okay. Okay. That's why. That was like, I was thinking rap, but then why would we get. Yeah, okay.
- [42:59]
B
No one.
- [43:01]
A
Yeah, okay. Of course. Okay.
- [43:04]
B
So, well, he had an album that was called Detox that was rumored to be forthcoming for literally 10 to 15 years. And Dr. Dre would pop up on rap songs and say, look out for Detox. And so rap fans for years were just were waiting, waiting, waiting for Detox. The Deep Seek model is the detox of AI because we've been hearing about it for at least nine months, and for the last six months, it's felt like, oh, it's coming, it's coming, it's coming. And particularly over the last six weeks, it's been like, next week it's coming. Next week it's coming. So I have no idea why it's being held, but at this point, I guess I'll believe it when I see it. I don't know.
- [43:50]
A
The thing too is there are also other really good Chinese models out there, including Quinn. You know, so. So Deep Seek had, you know, had its moment. And I think this is where, you know, one of. One of the things about the. One of the other things that seems to be coming out about the departure of these. Of these researchers from Alibaba is that one of the problems was that the balance of getting resources because of the limitation of compute, Alibaba has this massive cloud business and that those cloud customers were getting some preferential access. And so this goes back to actually the whole debate of our Export controls working or not. Again, you hear the Deep Seq founder last year, compute is a shortage, tiny firms. COMPUTE is a problem and it is a problem because of the export controls, both in terms of the restrictions on the chips that can be sold and also on the restrictions on the semiconductor manufacturing equipment.
- [44:41]
B
Indeed. No, I mean, and it's interesting because the Reuters report about Deep SEQ training on Blackwells paired with the OpenAI messaging on distillation and then Anthropic came out last week and was also talking about Distillation, named Deep Seq specifically along with Moonshot and Minimax. On one hand, a takeaway from this latest PR campaign is that this could see some of these AI labs become even more locked down over the next 12 months or so as they try to prevent distillation in the future. And then on the other hand, it does sort of highlight how far away China is in terms of self sufficiency in AI, at least on the leading edge, if that's a long term goal. And clearly it's been a point of emphasis for Xi and the CCP for the last two years at least. But there's still some work to do in order for them to close the gap independent of US infrastructure, independent of US models that are being distilled to help the Chinese models. All of it. I think it's part of the same story and it was interesting to see the PR efforts on the American side. So we'll see.
- [46:00]
A
And you know, on the distillation, you know, of course the people were like, who, you know, who cares if they're, you know, open air, anthropic or concerned about distillation because, you know, they've also, you know, they didn't care about copyrights, you know, et cetera, et cetera, et cetera. I mean, leaving that aside, one of the questions really is if, if, you know, if these distillation attacks are happening, which again I think I thought was an open secret.
- [46:21]
B
Yeah. I mean, even when Deep Sea was released, Ben was very clear, Ben Thompson was very clear. Well, distillation was part of this process.
- [46:29]
A
And so then the question is, is what? What does distillation get the Chinese labs? And you know, certainly I've heard, you know, that absent the distillation attacks, their leading models would be potentially more than a year behind the US labs, which is a lifetime in AI.
- [46:45]
B
Yeah, no kidding. Yeah, well, and Deep Seek, the other thought I have in terms of their latest model and when it will finally see the light of day, it does remind me of the conversation we had in the immediate aftermath of Deep Seek's release about a year and a half ago where you said, well, being a national champion can be a gift and a curse for some companies. I think that's probably informing some of the paralysis that we've seen at Deep Seek. But, but maybe we'll get more information on what's driving the delay.
- [47:16]
A
If it is true that they have trained on thousands of Blackwells in Inner Mongolia at a data center Pockets.
- [47:21]
B
Sure.
- [47:22]
A
Well, or, or you know, you have a lot of, there's a lot of support to smuggle maybe. Yeah.
- [47:28]
B
A lot of people looking the other way. Sure. And giving you state resources as you get the Blackwells in the store.
- [47:35]
A
We, we just, we don't, we don't know. But again, it just is an interesting sort of where is their model and what is really going on. And because there's been some reporting again, there's been look like pretty good source reporting that now looks like it still wasn't fully accurate.
- [47:51]
B
It's crazy.
- [47:52]
A
You wonder what's going on.
- [47:53]
B
And look, this is not scientific. I haven't gone back and checked, but I feel like I've read at least five stories in the Financial Times over the last six months saying that the Deep Seq model is coming soon and it never materializes. So I'm sure as we record this and have this conversation, it's coming out now. But in any event, if it does, we'll talk more about it next week. Final item here. This is from Alex Wickham, the UK political editor at Bloomberg uk. Counterterror police have today arrested three people on suspicion of assisting the Chinese intelligence services. Officers arrested a 39 year old man at an address in London, a 68 year old man at an address in Wales and a 43 year old man also in Wales. A Labor MP's partner is one of the people arrested on suspicion of assisting Chinese spies. A second person arrested is the partner of a former labor mp. Secretary Minister Dan Jarvis threatens China with severe consequences if the allegations are proven. He's three two one. He says the UK has formally demarched Chinese officials in London and Beijing. So Bill, this was breaking the morning of our recording here. So details are still emerging from the uk. What do you make of the latest mess engulfing the Labor Party and the Chinese Communist Party?
- [49:28]
A
No, I mean this is potentially a very big scandal for Prime Minister Starmer and the Labour Party and again could have real impacts on UK China policy given he's already under some pressure of course from the opposition in the UK over his recent trip to China. And best I can tell so far I've been asking around, this scandal doesn't have anything to do with the Peter Mandelson scandal who I think has a whole bunch of China skeletons in his classic too that haven't yet come out. And so it could actually get worse for Labor Labour Party. This one I'm hearing it's part of related to some sort of energy company that was trying to do like windmill clean energy, but it's not at all clear yet where what's really going on. I mean this, we had the case last fall of the, of the alleged PRC spies who, the case was dropped at the last minute.
- [50:21]
B
Chris Cash and someone else.
- [50:22]
A
Yeah, the Cash and Barry, you know, they, and as we talked about at the time, you know, they, they didn't get their day in court. So they'll be ever forever be known as the formally accused, alleged accused spies for China who then are never going to, won't be prosecuted. So you know, they're innocent. Although I think a lot of people, again, it's one of those things where, and then it became a scandal. There was a lot of criticism of the government's handling of that and there's a lot of finger pointing in the UK system about who was really to blame.
- [50:51]
B
Well, they didn't go forward with the prosecution because nobody from the sitting labor government was willing to testify that China poses a national security threat to the United Kingdom.
- [51:03]
A
Right. So, so for them to bring another case so quickly must mean one, I think does mean that they are pretty confident in the evidence or at least that they have the ability to get it to trial this time. So we'll see. But it's probably, I mean I certainly the partner of a sitting member of Parliament, I think two or three of them were either current or former special advisors to the Labour Party. So this is, this is a potential to be quite a big, big political scandal in the UK and you know, the security minister had already said they've already demarched the PRC diplomats in Beijing and in London so that obviously the UK government is, you know, they're sound like they're pretty upset about this.
- [51:46]
B
Yeah.
- [51:46]
A
So we'll see. I mean I hope we get more details about what they, what they found and what they're alleged to have actually done.
- [51:51]
B
Yeah, I would imagine that there will be more detail to discuss next week. But for now it's just breathtaking how many scandals Starmer is having to weather in the midst of all this because there's also controversy Surrounding Mandelson, there's controversy surrounding some of his behavior in the lead up to the Iran war.
- [52:14]
A
I mean but back to the Chinese of the Mandelson stuff is one where the, that I think could get, you know, he had a lot of dealings with China and he had, was known. I mean there's just, there's a lot been lots of rumors over the years and so that, that could get really interesting for the labor government.
- [52:32]
B
Interesting.
- [52:33]
A
And for the UK China relationship is.
- [52:36]
B
So would that be a situation where a trial brings some of that evidence to light, like hard evidence?
- [52:42]
A
Well, I think on Mandel, I think on Mandel said, I think there's they confiscate his devices. There's talk about releasing emails and some of his files and so we'll see what, what gets released. But clearly the opposition part, you know, they smell, the opposition parties smell a lot of even before today's announcement, I think they smelled a lot of blood around Mendelssohn as a broader political scandal. But then the folks who are focused on China also saw potential for some revelations about sort of labor in China that probably would not look good for the current prime minister.
- [53:14]
B
Right? Well, none of this looks good for the current prime minister.
- [53:18]
A
And I mean the thing is about, we talk about but the thing about the UK is, you know, once the UK media gets sort of a scandal in its teeth, I mean they really, they, they, they, you know, they really know how to go at it in the way that even the US media just doesn't. I know quite impressive.
- [53:33]
B
I feel guilty. But I am kind of looking forward to following this with a lurid eye on how crazy it gets over the next week or so. So I promise we' highlights here on the show. Final note from Cosmic Book News. This just amused me. It was an article surfaced by the House Select Committee. Sony Pictures CEO Tom Rothman says Spider man no Way Home should have crossed $2 billion worldwide. And he blames Communist China for blocking the film's release and preventing it from hitting that mark. Speaking on the Town with Matt Bellany on YouTube, Rothman said the third Spider man movie made $1.9 billion globally but didn't receive a China release. According to Rothman, Chinese officials told Sony they could secure distribution if they simply removed the Statue of Liberty from the film. There was just one problem. The Statue of Liberty is the entire climax of the movie and Marvel also used it to pay tribute to Captain America. Rothman also added he couldn't imagine sitting in front of Congress explaining why he removed the statue of Liberty at the request of the Communist Party. Instead of making the edits, Sony walked away from the China release. Rothman insists that without that restriction, no Way Home would have easily cleared the $2 billion mark. I read that only to salute the ambitions of the Chinese censors going to Sony and saying, absolutely, we'll greenlight the movie for distribution. You just have to cut the final 25 minutes of your movie, which apparently revolve around the Statue of Liberty.
- [55:14]
A
So I think you, you asked that because it's been done before. Sure.
- [55:18]
B
Exactly.
- [55:18]
A
Sure. And I would say I salute Sony, but I think in this case it's, it's only because it really wasn't feasible versus can we make it work.
- [55:27]
B
That's a good note to keep in mind. If it hadn't been literally the final 25 minutes of the movie revolving around the Statue of Liberty, rest assured Lady Liberty would have been on the cutting room floor. But in any event, I appreciate that because it amused me. Bill, it is great to see you. Who knows the world will look like next week. But yes, it's great to be back. Two weeks was too long a break. But I had a delightful vacation. So thanks everybody for bearing with me. And for now enjoy the remainder of your week. Enjoy the two sessions, the work report. You got a lot to look forward to over the next couple of days
- [56:07]
A
here going to be very stimulating indeed.
- [56:10]
B
We'll be back next week and keep it rolling. People can email us email at sharp China fm. Bill, I will talk to you on the other side.
- [56:18]
A
Thanks. Thanks everybody.